Individual Retirement Account (IRA)

IRAs let people save for retirement with tax benefits, whether or not they have a workplace plan. They are opened with banks, brokers or fund companies, and can hold a wide range of investments.

There are two main types. A traditional IRA may allow contributions to be deducted from taxable income, depending on income and workplace plan coverage; investments grow tax-deferred, and withdrawals are taxed as income. A Roth IRA takes contributions from taxed income, but qualified withdrawals in retirement are tax-free.

For example, someone who leaves a job may roll their old employer plan into an IRA, gaining more investment choice while keeping the tax benefits.

IRAs have annual contribution limits, set by law and adjusted over time. Withdrawals before age 59 and a half usually face a 10% penalty plus tax, with some exceptions. Traditional IRAs require minimum withdrawals from a set age. Similar personal pension accounts in other countries include self-invested personal pensions in the United Kingdom and registered retirement savings plans in Canada.