IRA happens to be the acronym for Individual Retirement Account. According to the experts on retirement plans, it is one of the most popular personal savings plans that offer income tax benefits while saving money for retirement.
Eligibility
As per the experts on retirement plans, any individual can open an account and start making contributions to the IRA. You can do the same if you or your spouse are receiving taxable earned compensation during the year and you have not attained an age of 70½ years till the end of the year.
Your contributions
It is possible for you to invest up to the amounts which are allowed under the tax law. These investments are referred to as contributions. An income tax deduction is known to come into effect for the very same tax year in which you will make contributions to the funds.
Your contributions in addition to the benefits and earnings from these contributions will be accumulating free from tax till you will be withdrawing the money from the account. You will be capable of generating additional earnings which are unreduced by taxes on the earnings every year the fund that remains in the IRA.
If you have attained the age of 50 years, you will be capable of doing catch-up contributions which will assist in balancing the benefits of enhanced contributions for younger individuals. At the beginning, you should be making maximum regular contributions to your IRA.
Withdrawals
Distributions are recognized to be the withdrawals from the funds of the IRA. In the year you procure the distribution, you will require income tax on the specific amount. Since the ultimate goal of IRA is providing for your own retirement, there is a disincentive if you will be withdrawing funds post the retirement age. The disincentive is recognized to be a form of tax penalty. Almost 10% of the tax distributions are received before you attain the age of 59 and a 1/2 years.