IRA stands for “Individual Retirement Account.” Like a 401k, this tax-deferred (meaning the money is taxed upon removal only) savings plan was created by the IRS to help people save for retirement while investing their money. The IRA was originally developed in 1974 for people not covered by a company pension plan. This allowed the average person to set aside money (tax-deferred, some contributions even tax-deductible) for retirement that could also be invested and grow throughout the years.
Well then, why doesn’t everyone put in money? It’s certianly better than a cookie jar! Your plan administrator manages it for you, and you just take it out when you need it, right? You can probably guess that it isn’t that easy. The IRS created these plans, remember? Like everything else, there are rules by which you must abide, and only certain people can open an account.
Fortunately for most people, opening an account is simple and an excellent way to assure themselves a better retirement. Depending on the type of IRA, the rule is that you must have received anywhere from more than $43,000 to less than $95,000 per year in taxable income (wages, capital gains, etc) if filing alone, or $63,000 to $150,000 if filing jointly. The accounts may be opened at a bank, savings and loan association, investment company, or a federally-approved credit union. Some companies offer employees IRAs as a benefit rather than 401ks.
There are mainly four different types of IRAs. Since the government is attempting to help us save for retirement by making these investment, each one is meant for different retirement goals and different people. These are described in “What Are the Benefits of an IRA?”
Research and find out which IRA works best for you. In these uncertain times, it is best to start planning for your retirement as soon as you can. The investment can have its ups and lows, but overall it is money that you put away now to most likely build up your savings that cannot be touched until retirement. No more “oh, I’ll just take $20 from the cookie jar…” which can be very helpful.