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An IRA, short for Individual Retirement Account, is an investment account in which you save money for retirement.
Although there are several types of IRAs, the most common is the Traditional IRA.
How does it work? Anyone under age 70½ who earns money can make contributions to a Traditional IRA. The contribution limit changes each year.
Once the money is in your IRA, you can invest it in a number of different securities, such as stocks, bonds and mutual funds.
As the years go by, all of the income from those investments—that is, interest, dividends, and capital gains—accumulate tax-free. As a result, your savings can really add up.
You can begin taking distributions from an IRA at age 59½. At that time, you pay taxes on the withdrawals at your ordinary income tax rate.
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