What Is an IRA?

Published by Maku Seun on

Do you know what an IRA is? What is it? What is the full meaning of IRA?

An individual retirement account, or in short form, IRA is a form of “individual retirement plan”, provided by many financial institutions, that provides tax advantages for retirement savings. (1)

What is an IRA?

It is an investing tool with many tax advantages that individuals use to earmark funds for retirement savings. If you withdraw money from an IRA prior to age 59½, you are in most cases subject to an early withdrawal penalty of 10%.

Many people think it’s an investment – but it’s just the basket in which you keep stocks, bonds, mutual funds and other assets.

Unlike 401(k)s, which are accounts provided by your company, the most common types of IRAs are accounts that you open on your own. Others can be opened by self-employed individuals and small business owners. There are several different types, including: 

  • Traditional IRAs, 
  • Roth IRAs, 
  • SEP IRAs, and 

Who can open an IRA?

Anyone who earns an income – that is, income from a job that is claimed for tax purposes, not investment income or Social Security – or who has a spouse with earned income, can open and contribute to an IRA.

How much does it make per year?

It depends. The earlier you start contributing to an IRA, the more money you can potentially make. Exact amounts vary with market fluctuations, but contributing as soon as you can will give you the benefit of compound interest.

Is it the same as a 401(k)?

An IRA and a 401(k) are two different types of retirement accounts. While a 401(k) plan is an employer-sponsored plan that often offers a matched contribution, and it can be opened by an individual.

Recommended Article:  How Much Money Will You Need To Retire?

Where do I get it?

You can open an account at most financial services providers, online or in person. That includes local banks and credit unions, brokerage firms and big mutual fund superstores or discount brokerages.

What Does Investing Mean?
Categories: Retirement

Maku Seun

Maku Seun is a blogger, an entrepreneur and author of Charge Your Life currently on Amazon. He has started various online businesses and is well experienced in saving and managing his money. Follow to get more money saving tips.


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