Individual Retirement Account - IRA


DEFINITION of 'Individual Retirement Account - IRA'

An investing tool used by individuals to earn and earmark funds for retirement savings. There are several types of IRAs: Traditional IRAs, Roth IRAs, SIMPLE IRAs and SEP IRAs.

Traditional and Roth IRAs are established by individual taxpayers, who are allowed to contribute 100% of compensation (self-employment income for sole proprietors and partners) up to a set maximum dollar amount. Contributions to the Traditional IRA may be tax deductible depending on the taxpayer's income, tax filing status and coverage by an employer-sponsored retirement plan. Roth IRA contributions are not tax-deductible.

SEPs and SIMPLEs are retirement plans established by employers. Individual participant contributions are made to SEP IRAs and SIMPLE IRAs.

Also referred to as "individual retirement arrangements."


Loading the player...

BREAKING DOWN 'Individual Retirement Account - IRA'

With the exception of Roth IRAs, where eligible distributions are tax-free, eventual withdrawal from an IRA is taxed as income; including the capital gains. Because income is likely to be lower after retirement, the tax rate may be lower. Combined with potential tax savings at the time of contribution, IRAs can prove to be very valuable tax management tools for individuals. Also, depending on income, an individual may be able to fit into a lower tax bracket with tax-deductible contributions during his or her working years while still enjoying a low tax bracket during retirement.

To learn more about saving for retirement, check out What's the difference between an individual retirement account (IRA) and a certificate of deposit (CD)?

  1. Stretch IRA

    An estate planning concept that is applied to extend the financial ...
  2. IRA Transfer

    The transfer of funds from an Individual Retirement Account (IRA) ...
  3. Roth IRA

    An individual retirement plan that bears many similarities to ...
  4. Simplified Employee Pension - SEP ...

    A retirement plan that an employer or self-employed individuals ...
  5. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
  6. Extended IRA

    An IRA that allows a second generation beneficiary to continue ...
Related Articles
  1. Retirement

    Best Ways to Protect Your IRA in Times of Volatility

    Discover the best tips and tricks available to retirees to protect their individual retirement plans and ensure a sustainable income during retirement.
  2. Stock Analysis

    Is Zynga Stock Suitable for Your IRA or Roth IRA?

    Find out if Zynga is a suitable investment for an IRA. Learn about Zynga's long-term prospects. Is Zynga more appropriate for a traditional or Roth IRA?
  3. Insurance

    Top 5 Car Insurance Companies in Texas

    Examine the five biggest automobile insurance companies operating in the state of Texas, ranked based on market share in the state.
  4. Retirement

    3 Reasons Your 401(k) Is Not Enough for Retirement

    Learn the basic structure of a 401(k), and a number of reasons why it may not be substantial enough to secure an individual's living upon retirement.
  5. Retirement

    Tips On How To Use IRAs To Boost Retirement Savings

    According to the Trustees of the Social Security Fund, the fund will be depleted by 2037. Are you ready?
  6. Taxes

    11 Things You May Not Know About Your IRA

    These little-known features will help you get the most out of your retirement savings.
  7. Retirement

    Traditional IRA Deductibility Limits

    Find out where you can take a tax deduction on the contributions you make.
  8. Professionals

    Designations No Retirement Planner Should Be Without

    Advance your career and gain clientele by adding a few choice certifications.
  9. Taxes

    9 Penalty-Free IRA Withdrawals

    If you need to take early distributions, find out which exemptions allow you to avoid expensive consequences.
  10. Retirement

    Not All Retirement Accounts Should Be Tax-Deferred

    It may be better to leave your assets exposed to the tax man when you're saving to retire.
  1. Are target-date funds tax efficient?

    Target-date funds by themselves are not tax efficient, and their dividend distributions and any capital gains recorded on ... Read Full Answer >>
  2. Can my IRA be taken in a lawsuit?

    Whether your IRA can be taken in a lawsuit depends largely on your state of residence and the judgment in question. There ... Read Full Answer >>
  3. Are mutual funds considered retirement accounts?

    Unlike a 401(k) or Individual Retirement Account (IRA), mutual funds are not classified as retirement accounts. Employers ... Read Full Answer >>
  4. How does an IRA grow over time?

    Individual retirement account, or IRA, growth depends on many factors, including what types of investments are included in ... Read Full Answer >>
  5. Can you buy penny stocks in an IRA?

    It is possible to trade penny stocks through an individual retirement accounts, or IRA. However, penny stocks are generally ... Read Full Answer >>
  6. Can my child have an IRA/Roth IRA?

    One of the best assets a person can have is an individual retirement account (IRA), and children can have one as long as ... Read Full Answer >>
  7. What is the difference between taxable income and gross income?

    Gross income includes all of the income a person receives during a year that is not explicitly exempt from taxation, whereas ... Read Full Answer >>
  8. When can benefits be received from a provident fund?

    Like most retirement savings vehicles, participants in provident funds are eligible to receive benefits at retirement. However, ... Read Full Answer >>
  9. I have some stocks in a taxable account. Can I use them to fund my Roth IRA instead ...

    Regular IRA contributions must be made in cash. Contributions of securities are not allowed. Internal Revenue Code Section ... Read Full Answer >>
  10. Is it wise to put an IRA account into a fixed or variable annuity?

    The answer to this depends on an individual's investment goals, requirements and risk tolerance. During the 1990s, the majority ... Read Full Answer >>
  11. How do I get credit for my retirement plan contributions?

    There is an added incentive for adding to your retirement nest egg, if your income falls within certain limits. Under this ... Read Full Answer >>
  12. Can my spouse and I use our IRAs to purchase our first home?

    IRA owners can make penalty-free distributions to buy a first home for themselves, their spouses, children, grandchildren ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  2. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  3. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  4. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  5. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  6. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
Trading Center