What is an IRA

Generally speaking, an IRA is a tax-advantaged retirement account into which an investor may contribute a portion of his/her earned income. The "I" stands for individual, which is important in that these programs are arrangements individual investors make for themselves - not through an employer- sponsored flexible spending account or a payroll-deduct retirement plan.

A Traditional IRA is available to those under age 70 ½ who have earned income. Traditional IRA earnings grow tax-deferred until withdrawal. Withdrawals are required beginning at age 70 ½ and are taxed. Contributions made to this IRA may be deductible, depending on certain factors.

A Roth IRA is a nondeductible IRA introduced in 1997, through the Taxpayer Relief Act of 1997. Depending on certain income limits, taxpayers are able to save for retirement in such a way that allows the savings to grow tax- free. Taxes are paid on contributions, but qualified withdrawals are not taxed at all.

With a Coverdell Education Savings Account, there are no tax deductions allowed for the money contributed to the account. However, the deposits and earnings may be withdrawn tax-free for qualified education expenses. There are limits to the amount of money that can be invested annually.

A 403(b) retirement plan, also known as a Tax-Sheltered Account (TSA), is designed exclusively for employees of non-profit institutions such as public schools, colleges, nonprofit hospitals, and other tax-exempt 501(c) organizations.