What Is An IRA And How Does That Work?

What is an IRA and how does that work? An individual retirement account allows freedom for the invester along with substantial tax breaks. An IRA is an individual retirement account and is something that...

An IRA is an individual retirement account and is something that within the tax code like the 401K where the IRA allows for individuals to save money inside an account. The earnings are not taxed as you save throughout the years and it doesn't become taxable until you take money out of the IRA. Depending on your earnings or your wages, there are different levels, whether you are married or whether you are single but the government may allow you to deduct the contribution as well as the interest that you are earning... that you receive. And again this is another piece that we gather or encourage people to utilize as part of their overall retirement plan. The supplement of 401K, if they have one, or the supplement another profit sharing or retirement plan or if they don't have one, they certainly add to their overall savings for retirement. A Roth IRA is just a little bit different in that there are not any deductions from your income for the contributions that you make but, similarly, the earnings grow without taxation or their growth inside the Roth is not taxed and then when you take the money out its not taxed. So depending again on your income level, it can be an additional source of retirement fund. There are maximum contributions in both the 401K and the IRA and those have been increasing over the years. The recent tax law has changed and allowed for more money. Right now its $3000 inside an IRA. It's going to grow over the years. It look like Congress is really trying to make the IRAs and 401Ks more accessible and allow more money to be saved to provide for the baby boomers coming retirement but they are kept and that's the same for the Roth as well.

© High Speed Ventures 2011