Iras

IRAs (Individual Retirement Arrangements) are tax-advantaged savings accounts in the United States designed to promote retirement saving. They were created in 1974 under the Employee Retirement Income Security Act (ERISA) and were later expanded to include the Roth IRA, introduced in 1997 and available from 1998 onward.

Main types include Traditional IRA, Roth IRA, SEP IRA for self-employed and small businesses, and SIMPLE IRA for small employers.

Contributions: Individuals may contribute to traditional or Roth IRAs up to an annual limit, which is shared across these accounts. Eligibility depends on income and filing status, especially for Roth contributions and for deducting traditional IRA contributions. People aged 50 and older may make catch-up contributions.

Tax treatment: Traditional IRA contributions may be deductible, subject to income and plan participation. Investments grow tax-deferred until distribution. Roth IRA contributions are not deductible, but qualified withdrawals are generally tax-free.

Withdrawals and penalties: Distributions before age 59.5 are typically subject to a 10% early withdrawal penalty and income tax, with exceptions. Required minimum distributions from traditional IRAs begin at age 73 under current law; Roth IRAs do not require RMDs for the original owner.

Rollovers and conversions: Funds can be rolled over between IRAs or converted from traditional to Roth, with tax consequences for conversions. Direct transfers help avoid taxes.

Use and limitations: IRAs supplement employer-sponsored plans like 401(k)s and are a common tool for retirement planning. Because rules change, individuals should consult current IRS guidance or a financial advisor.