Save your money for retirement tax-free in an IRA.

An Individual Retirement Account (IRA) is an investment account that you set up on your own at a bank, credit union, or other financial institution with very special tax benefits.

You can save your money tax-free with an IRA. If you’d like, you can have a certain amount automatically deposited into your IRA from your checking or savings account each month. You can open this type of account with your Social Security number or your Individual Tax Identification Number (ITIN).

There are two types of IRA accounts:

1. The Roth IRA. This is the recommended option. Even though you have to pay taxes on the money now, you won’t be taxed on it when you are ready to retire.
2. The Traditional IRA. You pay taxes on the money when you withdraw it for your retirement.

Benefits of IRAs

• You manage where your invested money will go. You can pick a combination of individual stocks, mutual funds, bonds, or money market funds, depending on how much risk you want to take. Talk with a financial planner or an expert in your community if you have questions.
• Some retirement accounts have limits to how much you can contribute.  If you’re under 50, you can contribute up to $5,000 every year to an IRA. If you’re 50 and over, you can contribute up to $6,000 every year.

Problems with IRAs

• If you take money out of your IRA account before you turn 59½, you will have to pay taxes on the growth, plus a 10% penalty to the government. This is supposed to discourage investors from using these funds for things other than retirement.