IRA: Individual Retirement Account Definiton
Individual Retirement Account Definition
An IRA, or Individual Retirement Account, is a tax-advantaged, personal retirement savings plan that can be opened through a financial institution, mutual fund, or life insurance company.
While retirement vehicles like 401(k) plans are offered as an employee benefit, IRAs are designed for individuals to open on their own, including those who are self-employed or who own a small business. There are several types of IRA, including Traditional and Roth IRAs, which are geared towards traditionally employed individuals, and SEP and SIMPLE IRAs, which are designed to benefit small business owners and their employees. Each type of IRA has unique tax consequences, restrictions regarding eligibility and annual contribution limits, and specific penalties for early withdrawal based on age. The IRS publishes extensive information regarding each type of IRA, and is important reading for anyone considering opening an IRA account.