An individual retirement account (IRA) is established at a financial institution to allow you to save for retirement. IRAs allow for the tax-free accumulation of money or can be set up as tax-deferred accounts. Financial experts estimate a person should save about 85% of their income for retirement. Since 401K plans by themselves are usually not enough to reach this percentage, combining an IRA with a 401K is strongly recommended to avoid financial instability during your retirement years.
Traditional IRAs or Roth IRAs are set up in banks or other financial institutions like brokerages or mutual funds. Contributions to IRAs are then invested in bonds, stocks, CDs, or money markets. Roth IRAs are special retirement accounts funded by a person's post-tax income. This means you cannot deduct contributions to a Roth IRA on state and federal income taxes. Any future withdrawals following Roth IRA guidelines are considered tax-free.
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