Individual Retirement Account (IRA)
An IRA is a personal savings account into which an individual makes limited contributions yearly. The contributions are tax-deferred until withdrawn at retirement.
Contribution maximums for IRAs are $5,000 per year, or if you are over 50 years old $6,000 per year. If withdrawals take place prior to the owner being 59 1/2 years old, the owner pays a 10% penalty plus taxes on the withdrawal. The owner of an IRA must begin to take minimum distributions at 70 1/2 years old; otherwise, the owner will be penalized by the IRS. There are multiple types of IRAs, such as a Roth IRA, traditional IRA, SEP IRA, and SIMPLE IRA. Traditional and Roth IRAs are customarily set up by a singular taxpayer who can add 100% of his/her compensation to the account up to a maximum yearly sum. SEP and SIMPLE IRAs on the other hand are established by employers for their employees.