Individual Retirement Accounts (IRA) Definition

An Individual Retirement Account allows individuals with earned income to invest for retirement in a tax-deferred environment. There are many rules that govern eligibility, contributions, and withdrawals of IRAs. Generally speaking, contributions to an IRA are tax deductible if neither the individual nor his/her spouse are covered by a qualified plan. If the IRA owner is covered by a qualified plan the contributions may still be deductible, subject to income limitations. An IRA may be transferred to another qualified IRA without tax implications. Withdrawals from an IRA, however, are taxable events, and if the IRA owner is younger than 59 ½ there is an additional 10% penalty levied by the IRS. The IRS requires IRA holders to begin withdrawing funds from their IRA at age 70 ½ (minimum required distributions).

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