Posted in Finance, Accounting and Economics Terms, Total Reads: 417
Definition: Individual Retirement Account (IRA)
Individual Retirement Accounts are basically restricted saving plans. This is an account with a financial institution which gives opportunity to an individual to save money for his/her retirement period on a deferred Tax basis.
1. Traditional IRA- Here the Tax is imposed at a lower rate. So till retirement the earning grows at Tax deferred basis.
2. Roth IRA- In this case one contributes those money on which tax is already paid. So the money grows at a Tax free rate till retirement.
3. Rollover IRA- This is a type of Traditional IRA which helps to roll over specific assets from Employer sponsored plan (e.g. 401(k) or 403(b)) to Individual Retirement account.
It is estimated that 85% of what one earns before retiring is required after he/she is retired. Employer sponsored retirement plans like 401(X) might not be able to provide full support. One can use both 401(x) and IRA to resolve the issue. So an IRA actually supplements employers sponsored plans, provides alternate choices of investments focussed on retirement and also gives an additional benefit of tax-free or tax-deferred growth. One should give maximum of his/her investment amount to IRA to enjoy the maximum benefit.