Financial terminology can be confusing, but we’re help to help you make sense of it. We’ll occasionally post “jargon busters” to help you decode the often-indecipherable lexicon of finance and investing.
Individual Retirement Accounts (IRAs) are retirement accounts that you can start outside of your workplace. They have tax advantages to encourage you to save for retirement, but also penalties to discourage you from withdrawing before retirement.
There are two primary types of retirement accounts: a Roth IRA and a traditional IRA. With a Roth IRA you put in dollars after paying taxes and never pay taxes again, and with a traditional IRA you can contribute pre-tax dollars (which grow tax free) and then pay taxes when you withdraw the money.
The important thing to understand is that you can buy lots of different things in an IRA: you can buy stocks, bonds, mutual funds, or even FDIC-insured savings products. IRAs have contribution limits, and income tests, but they also have certain provision where you can borrow to fund education or a down payment on a home. They are a great and simple way to start saving for retirement, particularly when used in addition to a workplace plan.
Learn more about IRAs here.
