Individual Retirement Account

Definition

IRA. A tax-deferred retirement account for an individual that permits individuals to set aside money each year, with earnings tax-deferred until withdrawals begin at age 59 1/2 or later (or earlier, with a 10% penalty). IRAs can be established at a bank, mutual fund, or brokerage. Only those who do not participate in a pension plan at work or who do participate and meet certain income guidelines can make deductible contributions to an IRA. All others can make contributions to an IRA on a non-deductible basis. Such contributions qualify as a deduction against income earned in that year and interest accumulates tax-deferred until the funds are withdrawn.
A participant is able to roll over a distribution to another IRA or withdraw funds using a special schedule of early payments made over the participant's life expectancy.

Use this term in a sentence

You need to make sure that your individual retirement account will be enough for you to live on in the future.

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My individual retirement account has grown over the last 25 years, I will have a nice little nest egg of money when I retire.

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Current Internal Revenue Service guidelines provide limits as to the amount that can be contributed to Individual Retirement Accounts though provide for a slightly greater contribution for individuals 50 years of age and older.

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