IRAs

IRAs (Individual Retirement Accounts) are tax-advantageous savings schemes with a firm focus on building funds for retirement. Any capital gains or dividends from securities held in your IRA are free of tax.

There are 2 sorts of IRA, traditional or Roth.

With a traditional IRA, you only pay taxes on any investment gains when you come to withdraw funds in your retirement. This makes them particularly suitable if when you retire, you'll be in a low tax bracket.

There are 2 types of traditional IRA - deductible and non-deductible.

With a deductible IRA contributions made into the IRA are tax-free, and your taxable income is reduced by the amount of contribution. You qualify for a deductible IRA if 1) if you do not have a retirement plan/401k plan at work or 2) you have a pension plan/401k plan at work, but your adjusted gross income (AGI) is less than a $60000 (for 2006). Note that different rules apply to married couples.

With a Roth IRA, contributions are taxed with the rest of your income, but the fund offers tax-free growth, and furthermore you pay no tax when you make withdrawals in retirement. To be eligible for a Roth IRA your AGI has to below $110000 (for 2006). Again, different rules apply to married couples.

If you earn too much to qualify for either a deductible IRA, or a Roth IRA, a non-deductible IRA is still a reasonable option, as any tax is deferred until you withdraw income in retirement.

IRA funds can be held in a variety of different savings vehicles, from ultra-safe deposits insured by the NCUA, to non-insured stocks and mutual funds. Watch out for IRA administrators with a poor investment record and high fees.