IRA Accounts

Individual Retirement Arrangements (IRAs) are one of the most popular varieties of retirement plans available in the United States. Available in five major types, IRAs offer individuals the chance to supplement Social Security with additional funding for their retirement years. The most popular types of IRA accounts include:
Each type of IRA offers its own unique advantages and drawbacks; most traditional IRAs feature the ability to contribute a certain amount on a tax-deferred basis each year. Roth IRAs require that taxes be paid at the time of contribution, but in return provide tax-free withdrawals during retirement.

Starting out

Setting up an IRA is usually a relatively simple process. In order to open an IRA, it is necessary to fill out and sign application forms; these are generally provided by the investment firm that will manage the account. In some cases, the applicant’s employer will handle setting up an IRA for their employee and will open an IRA with an employer contribution; this option is often available for participants in SEP and Simple IRA plans. The initial contribution and all subsequent contributions to the IRA must be made in cash; other assets including securities and other types of financial instruments may not be used to start or to fund an IRA.

Choosing a fund manager

Most IRAs have a custodian or manager who oversees and handles the actual investment transactions with guidance and direction from the participant. The custodian is legally enjoined from giving investment advice, but will carry out the orders of the IRA owner within the confines of the existing policies of the custodian or management firm. In most cases it is advantageous to obtain a no fee IRA and reduce the overhead costs associated with these accounts. Finding a no fee IRA is usually relatively simple, since they are available from a number of major firms.

IRA investment strategies

Regardless of which type of IRA is selected, it’s essential to select an investment strategy that is suited to the individual situation. Aggressive strategies are more suitable for younger investors, since they involve a larger degree of risk; individuals closer to retirement may want to invest more conservatively. Index funds are often a good overall choice, since they typically cover a good cross-section of the market and provide diversification without continual oversight by the investor.

IRA distributions

Distributions from an IRA account are available at any time; however, significant penalties apply to withdrawals that occur before the account owner reaches the age of 59 and 1/2 years unless certain exceptions apply. Exceptions include:
  • Significant medical expenses
  • Coverage of medical insurance during periods of unemployment
  • Disability
  • Qualifying education expenses
  • Funds for the purchase of a first home
IRA investments provide a solid foundation for a comfortable retirement. Combined with Social Security and other retirement arrangements, IRA plans can ensure that individuals have the funds needed to achieve their retirement goals.
Tim Ord
Ord Oracle

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