Business and Personal Finance Dictionary

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• INDIVIDUAL RETIREMENT ACCOUNT (IRA)
  
  These tax-deferred retirement accounts are designed to encourage working people to invest for the long term. If you earn income from work, or are married to someone who does, you can put up to $2,000 per year in an IRA and postpone paying tax on any earnings. However, you must be at least 59 1/2, or qualify for an exception, to withdraw without owing a 10% penalty, in addition to taxes due on the amount you take out. There are two types of retirement IRAs, traditional and Roth, which have different qualification, contribution, and withdrawal rules. For example, you can contribute to a traditional IRA regardless of your income, and some people, depending on their income and participation in an employer-sponsored retirement plan, can deduct all or part of their annual contribution on their tax returns as well. Withdrawals from traditional IRAs must begin by age 70 1/2, and all earnings (plus any deductible contributions) are taxed at your current tax rate as they are withdrawn. Withdrawals from Roth IRAs are tax-free after you reach age 59 1/2, provided the account has been open at least five years. In addition, Roth IRAs have no required withdrawals.
  
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