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Questions and Answers
What is an Individual Retirement Account (IRA)?
An individual retirement account (IRA) is a long-term savings account that individuals with earned income can use to save for the future while enjoying certain tax advantages.
Who can use an IRA?
Individuals with earned income can use an IRA.
What are the benefits of an IRA?
An IRA provides certain tax advantages to individuals saving for the future.
Study Notes
What is an Individual Retirement Account (IRA)?
- An Individual Retirement Account (IRA) is a personal savings plan that allows individuals to set aside money for retirement, providing tax advantages for retirement savings.
- IRAs are designed to encourage individuals to save for retirement by providing a tax-advantaged way to invest for the future.
Who can use an IRA?
- Any individual with earned income can use an IRA, including self-employed individuals and small business owners.
- Spouses of individuals with earned income can also contribute to an IRA, even if they themselves do not have earned income.
Benefits of an IRA
- Contributions to an IRA may be tax-deductible, reducing taxable income and resulting in lower tax bills.
- Earnings on IRA investments grow tax-deferred, meaning individuals won't have to pay taxes on investment gains until withdrawal.
- Withdrawals are taxed as ordinary income, but individuals may be in a lower tax bracket during retirement.
- IRAs provide a supplemental source of retirement income, in addition to other retirement plans, such as 401(k) or pension plans.
- IRAs can be inherited, allowing individuals to pass on retirement savings to beneficiaries.
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Description
Test your knowledge about Individual Retirement Accounts (IRAs) and learn about the tax advantages and long-term savings benefits they offer for individuals with earned income.
