Retirement Savings:What Is an IRA?
How does an IRA retirement plan work? What are the benefits of having an IRA? Learn more about IRAs to see if it should be a part of your retirement savings.
So you’ve got a 401(k) through your workplace and are actively contributing. Good for you! But when saving for retirement, it’s a good idea to take advantage of additional retirement investment options as well. Another way to boost your retirement savings is to open an IRA, or Individual Retirement Account.
How does an IRA retirement plan work?
Unlike a 401(k) plan, which you may be able to open through your employer, an IRA is a retirement plan that you open on your own through any large financial institution. Typically, IRA providers offer a broad range of investment options—including mutual funds, stocks and bonds—so you can diversify your retirement portfolio to best suit your needs.
Like a 401(k) plan, dollars can be invested either through a Traditional or Roth plan. The biggest difference between the two has to do with when your investments are taxed. With a Traditional IRA, you pay taxes when you withdraw your funds in retirement. (However, in some cases, your contributions might be tax free.) The Roth IRA is the opposite—contributions are made with after-tax dollars but withdrawals made in retirement are tax-free. For both plans, you can begin making qualified distributions at age 59½. (With a Roth you must also have had the account for five years.)
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