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by: DanielBeckett
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An Individual Retirement Account, or IRA, is a retirement plan that provides tax advantages for retirement savings within United States tax law. Unlike 401k plans, which must be provided by an employer, IRAs can also be created by an individual. Aside from one specific type, IRAs contributions are made before tax.

Forms of IRAs

Different types of IRAs work in different ways. Traditional IRAs have no real distinguishing characteristics. Roth IRAs are perhaps the most different in intent, as the funds are taxed before contribution, allowing tax free withdrawals later in life.

Though Traditional and Roth IRAs are the most popular, there are several other forms of IRAs, including SEP IRAs (which are often used by smaller companies or self-employed people), SIMPLE IRAs (more similar to 401(k) plans than other IRAs), and Self-Directed IRAs (which allow an individual to manage their own fund).

Though there were once several other types of IRAs, these forms are now obsolete. These eliminated forms include Rollover, conduit, and Educational IRAs.

Despite their differences, the tax treatments required for IRAs are very similar. The only major difference is for Roth IRAs, which are taxed at withdrawal instead of deposit.

Contributions

Money is the only type of asset allowed for contribution to IRAs. The current limit on deposit is $5000 a year, with an additional $1000 allowed for anyone over age 50. Whatever the age, no one can deposit more than their yearly income.

Money can almost always be transferred between IRAs and other retirement funds. There are a few exceptions, but in general IRAs and other retirement accounts can accept funds from one another freely.

Getting the Money Out

Generally there are strong penalties for withdrawing funds from retirement plans with tax benefits, and IRAs are no exception. In this case, funds cannot be withdrawn without significant penalties before the holder reaches the age of 59 and 1/2. Exceptions allowing withdrawals include educational expenses, if the holder becomes disabled, or the first time the holder buys a house.

IRAs also require the holder to withdraw funds at a certain point, or the funds that should have been withdrawn will begin to be lost. When a holder reaches the age of 70 and 1/2, they must begin withdrawals.

Management

IRAs are almost always managed by a designated third-party, with the noted exception of Self-Directed IRAs. Most IRAs are consist entirely of securities, though some managers allow the inclusion of other specifically allowed assets.

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