An Individual Retirement Account (IRA) is an account that allows individuals to invest a certain amount of pretax income for retirement each year. Any growth (capital gains or dividend income) is tax deferred, which means taxes are not paid until the monies are drawn from the account.

Upon termination of employment, some retirement plans allow participants to cash-out the benefits they have earned in the plan while working for the company. An individual can receive these distributions without incurring any tax penalties by rolling the funds into an IRA. When someone sets up an IRA for this purpose it is referred to as a "conduit IRA". Funds rolled into a conduit IRA from a qualified plan are not subject to the usual contribution limits. In addition, these funds can later be moved from the conduit IRA into a qualified retirement plan of a new employer.

For more on this read, Transfer Retirement Savings When You Change Jobs.

This question was answered by Katie Adams.



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