Browse Definitions :
Definition

Individual Retirement Account (IRA)

Contributor(s): Matthew Haughn

An Individual Retirement Account (IRA) is a retirement savings account set up with a financial institution or brokerage firm that offers tax breaks for those investing income for their retirement.

IRAs allow for stocks, bonds and mutual funds to be used to save for retirement and can be used for a wide range of investments when self-directed, including real estate, private placements and tax liens.

Generally, IRAs allow individuals to save $5,500 a year, with an additional $1,000 in catch-up contributions allowed for those over 50 years of age. Penalties of 10% generally apply for withdrawals before the age of 59 ½. Once entered into an IRA, cash assets can be converted into and between different securities, such as stocks and bonds.

There are certain types of IRAs for different types of individuals, including traditional IRAs and Roth IRAs.

Traditional IRAs allow tax-deductible contributions. Withdrawals are taxed at the current tax rate when funds are withdrawn from the account, but any transactions within the account are not taxed. This works best for investors who think their tax rate will go down in retirement, which positive for those at the top of their salary or far along in their careers. Two types of traditional IRA  are Savings Incentive Match Plan for Employees (SIMPLE) IRA, which is similar to a 401(k) plan, and Simplified Employee Pension (SEP IRA), which is for small businesses to set up for employees.

Unlike traditional IRAs, Roth IRAs do not offer a tax deduction on contributions, but funds withdrawn in retirement are not taxed. This is useful for those who expect to have higher post retirement income tax levels than at the time of their investment. MyRA, introduced by the Obama administration, is a type of Roth IRA.

It is possible to have both traditional and Roth IRAs, but contributions to both combined may not exceed yearly contribution limits.

This was last updated in December 2018

Continue Reading About Individual Retirement Account (IRA)

Join the conversation

1 comment

Send me notifications when other members comment.

Please create a username to comment.

What fintech innovation is your company currently researching?
Cancel

-ADS BY GOOGLE

Extensions de fichiers et formats de fichiers

Motorisé par:

SearchCompliance

  • compliance framework

    A compliance framework is a structured set of guidelines that details an organization's processes for maintaining accordance with...

  • regulatory compliance

    Regulatory compliance is an organization's adherence to laws, regulations, guidelines and specifications relevant to its business...

  • privacy compliance

    Privacy compliance is a company's accordance with established personal information protection guidelines, specifications or ...

SearchSecurity

SearchHealthIT

  • telemedicine (telehealth)

    Telemedicine is the remote delivery of healthcare services, such as health assessments or consultations, over the ...

  • Project Nightingale

    Project Nightingale is a controversial partnership between Google and Ascension, the second largest health system in the United ...

  • medical practice management (MPM) software

    Medical practice management (MPM) software is a collection of computerized services used by healthcare professionals and ...

SearchDisasterRecovery

  • crisis management plan (CMP)

    A crisis management plan (CMP) outlines how to respond to a critical situation that would negatively affect an organization's ...

  • disaster recovery (DR) test

    A disaster recovery test (DR test) is the examination of each step in a disaster recovery plan as outlined in an organization's ...

  • business continuity plan (BCP)

    A business continuity plan (BCP) is a document that consists of the critical information an organization needs to continue ...

SearchStorage

  • kilobyte (KB or Kbyte)

    A kilobyte (KB or Kbyte) is a unit of measurement for computer memory or data storage used by mathematics and computer science ...

  • megabytes per second (MBps)

    Megabytes per second (MBps) is a unit of measurement for data transfer speed to and from a computer storage device.

  • zettabyte

    A zettabyte is a unit of measurement used by technology professionals and the general public to describe a computer or other ...

Close