What is an Individual Retirement Account (IRA)?
Individual Retirement Account or IRA is a type of savings account that would reap benefits after retirement as it will act as a pension, provided by financial institutions. It is a long-term savings account where an individual can enjoy certain tax advantages. This IRA is specifically created for the self-employed individual who cannot avail of the 401(k) retirement account provided by employers. One can open an IRA savings account via any financial institution, a bank, an online brokerage, an investment company, or a personal broker.
Geeky Takeaways:
- allowIRA is a retirement pension plan in the United States that offers tax benefits, investment flexibility, and provision for long-term growth.
- Account Types: Usually four types are there, Traditional IRAs, Roth IRAs, SIMPLE IRAs, and SEP IRAs.
- Amount Limitation: Traditional IRAs and Roth IRAs, both have limitations on the annual income, leading to restricting the amount of tax avoidance.
- Withdrawal: Before the age of 59 and a half years, one can withdraw money from an IRA only after incurring a hefty tax penalty of around 10% of the amount to be withdrawn.
- RMD Age: The age of availing the RMD (required minimum distribution) has been raised by 1 year from 71 to 73 as of 1st January 2023.
Table of Content
- How does an Individual Retirement Account (IRA) Work?
- Why Invest in an Individual Retirement Account (IRA)?
- Types of Individual Retirement Account (IRA)
- IRA Contribution Limits 2023-2024
- What are Required Minimum Distributions (RMDs)?
- Compare Individual Retirement Account (IRA) Options
- How to Open an Individual Retirement Account (IRA)?
- Conclusion
- Individual Retirement Account (IRA) – FAQs