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Finance Dictionary and Glossary of Investment Terms
Individual Retirement Account
Definition 1.
IRA. A tax-deferred retirement account for an individual that permits individuals to set aside up to $2,000 per year, with earnings tax-deferred until withdrawals begin at age 59 1/2 or later (or earlier, with a 10% penalty). IRAs can be established at a bank, mutual fund, or brokerage. Only those who do not participate in a pension plan at work or who do participate and meet certain income guidelines can make deductible contributions to an IRA. All others can make contributions to an IRA on a non-deductible basis. Such contributions qualify as a deduction against income earned in that year and interest accumulates tax-deferred until the funds are withdrawn. A participant is able to roll over a distribution to another IRA or withdraw funds using a special schedule of early payments made over the participant's life expectancy.
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Definition 2.
Also known as IRAs, individual retirement accounts give individuals the opportunity to set aside money each year for their retirement. If you meet certain income and other requirements, your IRA deposits become tax-deductible, reducing your taxable income dollar for dollar, and the earnings on your IRA investments grow tax-free. But the funds you withdraw at retirement are taxed. Recently the government established a new flavor of IRA, known as a Roth IRA, under which contributions aren''t tax deductible, but earnings grow tax-free and withdrawals at retirement aren''t taxed either. Either way, IRA contributions can be invested in a variety of vehicles, including stocks, bonds, certificates of deposit, and mutual funds. Most analysts consider some kind of IRA a good deal for investors.
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