Individual Retirement Account Investment Introduction

An Individual Retirement Account (IRA) is a tax-saving program (established under the Employee Retirement Security Act of 1974) to help Americans invest for retirement. Anyone who earns money by working can contribute up to $2,000 a year, or 100% of your income, whichever is less. If you don’t have access to a 401(k) or other retirement plan, or if you’ve calculated that your current plan won’t completely cover your retirement needs, then an IRA can help. IRAs offer tax-deferred growth — you don’t pay any tax on it or the money that it earns for you until you withdraw it during retirement.

You set up your IRA on your own with a bank, mutual fund, or brokerage firm. Like a 401(k), you can invest your IRA money in almost anything you can think of, from aggressive growth stocks to conservative savings accounts. Some financial planners advise that you use your IRA for investments that produce the highest income, such as stocks paying high dividends, because you defer the taxes. Another tactic is to put the IRA funds into riskier high-growth investments, such as stocks or certain types of mutual funds, because you don’t touch the funds until retirement and can always switch them to safer investments as you get older.
I suggest investing in an IRA for the following reasons:

• If your employer doesn’t offer a 401(k) plan
• If you’ve calculated that your current retirement plan won’t completely cover your estimated retirement needs, consider investing in an IRA — if you qualify
• To invest in high-yield investments — such as stocks paying high dividends — because your investment dollars are tax-deferred
• To invest in higher risk investments, such as stocks and certain mutual funds, if you don’t plan to retire for years to come (by doing so you commit to taking the chance of receiving higher gains for your investment dollar)

You can choose from two types of IRAs: traditional IRA and Roth IRA