Individual Retirement Account IRA Meaning and Definition

By Grace

Individual retirement account or IRA simply means your investment basket for your retirement. Anyone especially employees who wants to save money for their retirement funds, should contribute in their individual retirement account.

According to the Lifetime Guide to Money book published by the Wall Street Journal, Individual Retirement Account is “tax-deferred plan that can help you build a retirement nest egg. Individual whose income is less than certain amounts or who are not active participants in an employer’s retirement plan generally can deduct some or all of their annual IRA contributions when figuring their income tax. Others can make nondeductible IRA contributions.” [see source]

IRA is a good instrument to acquire enough money for your retirement. In our retirement planning section, we always mentioned that the best way to save money for retirement is to save automatically.

Individual Retirement Account Advantage

One of the good advantages of individual retirement plan or IRA is that it helps the contributor to save automatically. This is a good idea since many people are not well disciplined in saving money for retirement.

Further Reading: Save 10 Percent of Income on IRA & 401k for Retirement?

Individual Retirement Account vs. Stocks

Maybe you asked, which is better, to contribute in IRA or to invest money in stocks? If you can do both, its better. You will surely accumulate enough money to ensure you will retire comfortably and rich.

Source: Lifetime Guide to Money, Everything You Need to Know About Managing Your Finances – for Every Stage of Life, The Wall Street Journal, Hyperion, New York, 1997 page 497

Tips and Word of Caution

If you want to start investing in stocks, visit this stock market tutorial. Do your research on which is the best investment that can help you acquired your retirement target earning asset. Target earning asset means the total investments or assets that will make money for you during your retirement.

Don’t just rely in one investment. Try to diversify your assets. For more information, read the asset allocation strategy and find out how much percentage of your income should distribute in your individual retirement account (IRA).

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