A common question for financial advisers or employers offering a sponsored plan is what is an an IRA. IRA stands for Individual Retirement Account. There are several types of IRA's, including the two most popular which are the traditional and Roth. An IRA allows you to save for retirement, either tax free, or by deferring taxes until retirement age.

Roth IRA

A Roth IRA is a tax free way to save for retirement. All money that is contributed is post tax earnings. There are no taxes owed at the time of retirement. Also, there are income restrictions for contributions and contribution limits. A Roth allows you to make withdrawals without penalties, for any reason.

Traditional IRA

A traditional IRA allows you to make contributions that are tax deductible. There are a few restrictions with this type of savings plan. You cannot withdraw any money from the account until the age of 59 1/2. Also, most withdrawals before retirement age, are subject to taxes and a penalty. There are a few exceptions considered hardships where you can make withdrawals penalty free, but taxes are still owed. A hardship includes medical expenses, tuition for a child or buying a home.

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