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IRA is short for Individual Retirement Account.

IRA retirement plan is your personal savings plan that gives you income tax advantages on your saving money for your retirement.

Eligibility

Any person can open and make contributions to an IRA, as long as you, or your spouse (if you file a joint return), receive taxable earned compensation during the year and you're not 70 years old by the end of the year.

Your Contributions

You could invest up to the amounts allowed under the tax law. These investments are known as "contributions." An income tax deduction comes into effect for the tax year in which you contribute the funds.

Your contributions, plus the earnings and gains from these contributions, will accumulate tax-free until you withdraw the money from the account. You get to generate additional earnings, unreduced by taxes on these earnings, each year your funds remain in the IRA.

Catch-Up Contributions

If you're aged 50 and above, you can do "catch-up" contributions to let you balance out the advantages of increased contributions for younger persons. However, you must first make the maximum regular contribution to your IRA account.

Your Withdrawals

The withdrawals of the funds from IRAs are known as "distributions."

Generally, in the year you receive the distributions, you'll have to pay income tax on the amount.

As the prime objective of the IRA is to provide for your own retirement, there's a "disincentive" if you withdraw your funds prior to the retirement age (generally at age 59). This "disincentive" is in the form of a tax "penalty" of 10 % of the distributions received by you prior to age 59, provided certain exceptions apply.

The whole thing about this could be quite complicated; hence it's good for you to get professional advice should you want to withdraw significant amounts before age 59. You could avoid the penalty with a proper planning.

However, once you reach age 59, this penalty no longer applies to you.

On the other hand, if you don't withdraw your money soon enough, you'll face penalty as well.

Normally, you need to start taking money from your IRA no later than April 1 of the calendar year following the date you reach age 70. The penalty is 50 % of the shortfall between what you should have withdrawn and the amounts you actually withdrew by the proper date.

Types of investments in IRA Retirement Plan

Almost all investments are technically eligible for inclusion in an IRA account, but some are more appropriate than others from your financial investment and/or tax perspective.

If You Leave Your Job

You've 60 days to roll over your distribution. The best way is to get your company write out a check to the IRA rollover account directly. This ensures that nothing is withheld in taxes, and is much cleaner.

Multiple IRA Accounts

You can have multiple IRA accounts at different institutions.

Fee Structure

Each IRA plan is different as each provides different services and benefits. Some are free, some charge $10 per fund, others $35-60 per account. It's good that you check out what services each plan provide, before you decide on one.

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