An IRA allows you to invest your money in stocks, bonds, and other assets. You can then withdraw this money later in life when you retire or need it for other expenses. Anyone with earned income can open and contribute to an IRA, including those who have a 401 (k) account through an employer. The only limitation is the amount you can deposit into your retirement accounts in a single year.
An IRA, or individual retirement account, is an account for your retirement that allows you to delay paying taxes until the money is withdrawn. It’s similar to a 401 (k), but instead of the account being managed by your employer, this is an account that you choose and manage yourself. IRAs work differently depending on the type of IRA, the person’s age, and the amount of earned income. There are annual income limits for deducting contributions to traditional IRAs and for contributions to Roth IRAs. As a result, there is a limit to how much tax you can avoid when you invest in an IRA.
It’s possible to have both a Roth IRA and a traditional IRA, or multiple IRAs at different institutions. Traditional IRAs raise federal income for tax purposes, while Roth IRAs grow tax-free, so the money you invest in your accounts today could result in more money when you need it in retirement. Different types of IRAs are better for specific people. Two of the most well-known are traditional IRAs and Roth IRAs. Depending on which type of IRA you use, an IRA can reduce your tax bill, either when you make contributions or when you make withdrawals in retirement.
