Individual Retirement Account (IRA) - Financial definition

An Individual Retirement Account (IRA) is a cornerstone of retirement planning in the United States, offering various types such as Traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs, each with unique tax advantages and contribution limits. Traditional IRAs allow for tax-deductible contributions with tax-deferred growth, meaning taxes are paid upon withdrawal in retirement. Roth IRAs, on the other hand, are funded with after-tax dollars, allowing for tax-free growth and tax-free withdrawals in retirement. SEP IRAs and SIMPLE IRAs are designed for self-employed individuals and small business owners, providing higher contribution limits and simplified administration. IRAs can hold a wide range of investments, including stocks, bonds, mutual funds, and ETFs, making them flexible tools for building a diversified retirement portfolio. Understanding the specific rules, contribution limits, and tax implications of each type of IRA is crucial for maximizing retirement savings and planning effectively for the future.