An IRA stands for “individual retirement account” and this means you don’t have to have a retirement plan through your work in order to save, because you can set these up on your own. However, in order to save in an IRA, you must have earned income for the year. A Traditional IRA allows you to save money for retirement in a ‘tax-deferred’ manner – this means you don’t pay taxes on the money you keep in the account until you start taking money out for retirement. Once you take money out, then you will be taxed on the money.
A major difference between a Traditional IRA and a Roth IRA is that anyone can contribute to a Traditional IRA. In general, IRAs can be a great way to save for retirement either on their own or in combination with a workplace retirement plan.
