An IRA could be viewed as a wealthy relative whose money you’ll inherit sometime in the future. Not exactly a bad way to think of it, as long as you realize that you must also contribute to the kitty, and that your relative isn’t going to die until you’re retired.
In more realistic terms, an individual retirement account (IRA) is a tax-advantaged way to accumulate retirement income over the long-term. There are several kinds to choose from:
Your money will grow tax deferred, and you may be eligible to deduct your annual contribution from your tax return.
Contributions are not tax deductible under any circumstances, but withdrawals made for qualified reasons avoid taxes altogether.
Ideal for small business owners or the self-employed, this IRA allows both employer and employee contributions.
Also ideal for small business owners or the self-employed, this IRA does not allow employee contributions, but employer contributions have much higher limits.