What Is An IRA?

The IRA

An IRA is an Individual Retirement Account.  They were established to assist citizens looking to provide money for their future retirement needs without the worry of being double-taxed by the IRS.  An IRA account is not without conditions however, including how much one can invest annually, what types of investments are allowed to be included, tax penalties for making early withdrawals, and so on.  A traditional IRA, and its new twin, the IRA Roth account, are excellent means to save for the future without facing heavy taxation.

What Comprises An IRA

An IRA consists of contributions from the IRA account holder.  When opening an IRA account one may include cash, securities, stocks, bonds, and even certificates of deposits.  These will all contribute to increasing the wealth of the IRA account and provide for retirement uses.  When depositing in a traditional IRA account, there are established limits for how much one may deposit each annual year.  At present the current amount one may deposit annually in a single IRA account is based on their age and income.  As of 2009:

$5,000 Age 49 and below

$6,000 Age 50 and above

These are the maximum amounts currently but are still subject to income.  If your income falls below these amounts, then that is the maximum amount you may place in your IRA for the year.  It is expected these amounts will be adjusted this year for inflation.  It is also important to note that these amounts are based on a single IRA account.  You may contribute and own several.

Advantages To IRA Accounts

IRA accounts for the purposes of retirement have many advantages when looking to avoid being double taxed on your money.  That is why they were created and are in heavy use.  Without utilizing an IRA account, you would be taxed on your original income to get the money used for investment.  You would then be taxed on the earned interest as you save it for many decades towards retirement.  A lot of tax.  Additionally IRA accounts can be excellent tools to pass on money to your heirs without facing penalties in the form of taxes after passing away with assets.  In the event of death, the IRA account can be passed automatically to a spouse or heirs unlike with social security payments, and there will be no so called ¨death tax¨ to be concerned about.

Related posts:

1. What Is A Roth IRA?
2. What Is A Traditional IRA?
3. What Is A SEP IRA?
4. What Is A Retirement Account?
5. How Do I Start Investing My Money?