How an IRA Works

FinanceTrading / Investing

  • Author Jennifer Quilter
  • Published September 18, 2010
  • Word count 375

There's a lot to know about your retirement savings options, and one of the first things you need to know for some basic info about your options is how an IRA works.

These are self directed accounts that you have a lot of control over. They are very similar to 401k accounts, except that a 401k is sponsored by your employer (so your employer sets the account up, making a lot of your investment choices for you) whereas with an independent retirement account you have all of the control. These accounts also have much lower maximum contribution limits than a 401k does.

But other than that, they are very similar saving vehicles. You contribute some money to the account over the year, and this money is then invested in a variety of ways that you have chosen (stocks, bonds, etc).

You must go and set the account up at a financial company of your choosing on your own. You can then choose from some basic options of what kind of account you want, such as a traditional one or a Roth. You can then pick what investments you want from a nearly endless variety. You can change these investment choices over the years as you see fit.

If you have a hard time deciding on what choices work best for you, you can always talk to a financial professional at the company you are setting the account up with, or hire some kind of consultant somewhere else.

There are really an endless number of options for how you can set the account up, and how you can build your entire retirement plan really. You can set up one of these accounts and use it as a major part of your saving goals, or you can put spare money in them as you please and use it in conjunction with other options, like a 401k. There are as many choices for how to save for retirement as there are people, so don't believe there is a right or wrong answer when you go to try and choose. Simply research your options like you are doing now, see how an IRA works and some of your other options, and make the choice that seems right to you.

Retirement savings doesn't have to be so confusing. In order to save enough for your goals you'll want to learn more about your options like IRA retirement contribution plans, balance goals, and the basics of how things like a 401k loan works.

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