When it comes to retirement planning, you need to use every tool available. An IRA is a basic tool that is highly effective.
An IRA is an individual retirement account. They have largely replaced the time honored company pension as the basic supplement to Social Security in the financial planning of most people today. There are several different types of IRAs and each has slightly different rules and limits that control such things as the maximum amount that can be deposited as well as the penalties for withdrawals. There are several things that are common to IRAs.
The basic principle behind the IRA is that the owner of the account deposits money into it. This money is managed and invested by the custodians of the IRA. When the owner reaches a certain age, the money that has accumulated in the account can be withdrawn and used to pay for retirement expenses. One of the biggest advantages of many IRAs is the tax deferment. In most cases, the funds are deposited pre-taxed into the account. The income tax that is due on the funds is not paid until the money is withdrawn. The idea behind this is that retirement age people have a lower tax rate.
In most cases, the funds deposited into the IRA are in the form of cash although in certain cases other assets such as real estate may be part of the deposit. Once the money is in the account, however, it may be converted into other forms of assets such as stock portfolios or other investments. Account owners are not allowed to borrow against their IRA, and there is a substantial penalty for withdrawing the money early. The age of 59 and one half is the usual age at which penalty free withdrawals may be made. It is important to remember that the funds in an IRA can be withdrawn at any time. You will just have to pay taxes on the withdrawal and pay the early withdrawal fine.
Some IRAs are still operated by employers and function as pension plans of a sort. Other IRAs may be self-directed. In the self directed IRA, the investment decisions concerning the deposited funds can be controlled or influenced by the owner of the IRA. IRAs may be “rolled over” into other IRA accounts, usually without penalty. The mobility of most workers today makes this an important consideration in the selection of an IRA. In fact, there is one way to actually borrow money from your own IRA for a short term. When you are rolling over your account, you have 60 days to deposit your money in the new account without any tax or penalty obligation.
The Individual Retirement Account is an essential element of proper personal financial planning. In most cases, a retirement plan is one of the end goals of the entire financial planning process. Retirement should be a special time free from worry. No one wants to live in poverty in retirement or to be a burden to others. A properly funded IRA can be one of the best guarantees that this will not be your fate in your Golden Years. | 
