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Individual Retirement Arrangements (IRAs)

If your employer does not offer a retirement plan you can save for retirement on your own. One option is to open an IRA, an Individual Retirement Account. An IRA is a personal account that you set up with a bank or other financial institution, life insurance company, mutual fund or stockbroker. It’s easy to start. You can write a check or have a certain amount deducted regularly from your checking or savings account or from your paycheck.

You can have a traditional IRA whether or not you are covered by any other retirement plan. However, you may not be able to deduct all of your contributions if you or your spouse is covered by an employer retirement plan. It’s a good idea to save in both the employer plan and on your own, in mutual funds, stocks, bonds, U.S. Savings Bonds, real estate, certificates of deposit, or other assets.

There are two different types of IRAs, traditional and Roth IRAs, which offer different tax advantages. And there are income limits and limits on how much you can contribute to an IRA each year.

Traditional IRAs

A traditional IRA is a way to save for retirement that gives you tax advantages.

Contributions you make to a traditional IRA may be fully or partially deductible, depending on your circumstances, and
Generally, amounts in your traditional IRA (including earnings and gains) are not taxed until distributed.

Roth IRAs

A Roth IRA is an IRA that, except as explained below, is subject to the rules that apply to a Traditional IRA.

  • You cannot deduct contributions to a Roth IRA.
  • If you satisfy the requirements, qualified distributions are tax-free.
  • You can make contributions to your Roth IRA after you reach age 70 ½.
  • You can leave amounts in your Roth IRA as long as you live.
  • The account or annuity must be designated as a Roth IRA when it is set up.

Read more about the Differences Between Roth IRAs and Designated Roth Accounts