What is an
IRA?
An IRA is an Individual Retirement Account
that allows individuals save money for retirement purposes while providing
income tax advantages.
An IRA allows you to make deposits into an investment
account, called 'contributions', up to certain amounts allowable by law. These
contributions are generally tax exempt, as well as the investment earnings up
until the time when retirement age is reached and you begin withdrawing money
from the account, known as 'distributions.' Also, should any money need to be
prematurely withdrawn, it becomes taxable as well. And, because IRA's are
designed to aid you in saving for retirement, there are further tax penalties
for taking money out of the account before retirement age.
On the other hand, not only does the government want to
hinder you from taking money out of an IRA too early, but also wants to make
sure that you don't wait too long to begin withdrawing your money either.
Typically, you need to begin withdrawing money from your IRA no later than
April 1 of the calendar year that you turn 70 1/2.
There are several different types of IRA accounts:
Traditional IRA, Education IRA, SEP IRA (Simplified Employee Pension), Simple
IRA, and ROTH IRA. Because of the complexity in differences and allowances in
each type we will not go into discussions on each individual. If you need
further information, you can visit the IRS website at:
http://www.irs.gov/retirement/article/0,,id=137320,00.html
