If you work for a company, you most likely have a 401(k), into which you contribute pre-tax income into to save money for your retirement. If you want to set up an individual retirement savings account, or are self-employed or own a small business, you do this through an IRA, or Individual Retirement Account.
An IRA is not an investment vehicle itself. It’s a place where you hold stocks, bonds and other assets and your investments grow tax deferred until you are ready to make withdrawals in retirement.
There are different types of IRAs, including traditional IRAs, Roth IRAs, SEP IRAs and SIMPLE IRAs. Each is designed for a particular use…and a particular user.
Origin of IRAs
With the waning of corporate pensions, in 1974 Congress passed The Employee Retirement Income Securities Act (ERISA), which shifted the responsibility of saving for retirement from companies to workers.
To inspire this financial independence for retirement, ERISA offered four incentives to save for ourselves:
- Contributions to these accounts would be tax-deductible.
- Gains on these particular accounts were tax-deferred.
- These types of accounts were exempt from creditors.
- The option to use payroll deduction to contribute would make it even easier to set the money aside.
At Eric Scott Financial, we can help you determine which IRA you qualify for and how to use it to achieve your objectives.