Individual Retirement Account
An Individual Retirement Account or IRA is either a traditional or Roth IRA set up with a financial institution like a bank, broker, or mutual fund in which contributions may be invested in many types of securities such as stocks, bonds, money market, and CDs.
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Expanded Definition
A Traditional IRA is the term for a regular IRA available to those under age 70 1/2 who have earned income (i.e., job compensation). Earnings within the traditional IRA grow tax-deferred until withdrawal. Withdrawals must begin, and will be taxed, when the owner reaches age 70 1/2. If required minimum distributions are not taken at that age, a 50% penalty will be assessed on the amount not taken. When made, contributions may or may not be tax deductible. A working spouse not covered by a qualified retirement plan through employment may make a tax-deductible contribution of up to $2,000 annually to an IRA despite the other spouse's coverage under an employer-provided retirement plan. When the couple's AGI reaches $150,000, deductibility for such contributions begins to decline, and it reaches zero at a joint AGI of $160,000.
Types of IRAs
- Traditional IRA
- Individual Retirement Annuity
- Employer and Employee Association Trust Account
- Simplified Employee Pension
- Savings Incentive Match Plan for Employees IRA SIMPLE-IRA
- Spousal IRA
- Rollover IRA
- Inherited IRA
- Education IRA
- Roth IRA
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Related Terms
- Account
- AGI
- Adjusted Gross Income
- Bank
- Broker
- Mutual fund
- Penalty
- Required minimum distribution
- Retirement
- Roth IRA
- Spousel IRA
- Tax deductible
- Tax deferred
- Traditional IRA
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