An Individual Retirement Account, or IRA, is an account that lets you invest and earmark funds for retirement, which can give you significant tax advantages. The most common IRA’s are Traditional and Roth. Provided that you are aware and abide by the rules and restrictions, an IRA can be one of the most efficient, cost-effective, and beneficial vehicles you have for funding your retirement.
Besides the structure that IRAs provide to your retirement plan, they also have tax advantages. While you have your choice of investments and any investment can lose value, an IRA will essentially help you keep more of your potential gains, which can help you accumulate more with the power of compound interest or reinvested dividends or returns.
While these benefits are important, it’s also vital to understand that IRAs have distribution rules that make it costly for you to withdraw funds before you retire. This is by design, and discourages early withdrawals. Withdrawals made before the mandated retirement age from an IRA are taxable and may result in a penalty, draining away any tax savings you may have reaped from making contributions through the years.