Sep 13 · 2 min read
Key Takeaway: An Individual Retirement Account (IRA) is a retirement plan opened and controlled by you. IRAs are highly flexible, allowing you to choose from a wide variety of investment options and plan providers.
An Individual Retirement Account (IRA) is an investment account created by the government to help you save for retirement. Unlike a 401(k), you won’t need an employer to provide you this account. This is because IRAs are opened and controlled by you!
While there are several different types of IRAs depending on your specific situation (Traditional IRAs, Roth IRAs, Backdoor Roth IRAs, Spousal IRAs, SEP IRAs, SIMPLE IRAs, and more), the most common are Traditional and Roth IRAs. With a Traditional IRA , you add money to your account before paying taxes on it. While this may sound like an immediate “no brainer”, there is a catch. With a Traditional IRA, you will have to pay taxes on your money when you withdraw it from your IRA. A Roth IRA , on the other hand, lets you add money to your account after paying taxes on it. In return, you will not have to pay taxes when you withdraw money from your IRA later in life.
To help you decide which type of IRA is best for you, we go deeper into the difference between Traditional and Roth IRAs here .
No matter if you choose a Traditional or Roth IRA, you can open an IRA with most banks and brokers. If you have no idea what a broker is, don’t worry, we’ll explain. If a company allows you to trade stocks through their apps, they’re called brokers and will usually also offer IRAs. Find the right IRA provider for you here.
Once you choose who you want to open your IRA with and deposit money into your account, you are then able to invest that money into different assets like stocks, bonds, and real estate. As time goes by, the goal is for your investments to increase in value, giving you a lump sum of cash you can use to retire.
Unlike a 401(k), an IRA allows you to choose from a large selection of investments. Not just the ones your employer makes available to you. You can choose to invest in funds like ETFs and Mutual Funds or you can choose to invest in individual stocks and bonds. With an IRA, the choice is yours.
Although IRAs provide a high level of flexibility, they still come with plenty of rules just like other retirement accounts. You have to have earned income (aka a job) to open one, you’ll be limited on how much you can contribute to it each year, and you won’t be able to withdraw from it penalty-free until you turn 59 ½. Learn more about IRA contribution limits here .
Before choosing a company to open your IRA with, you'll want to compare key details like fees, account minimums, and what special services they offer. Fortunately for you, we've done all the research, sorted through the details, and have created a comparison tool of the best IRA providers available. Find the right IRA provider for you.
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