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What is an IRA?

An IRA, or an individual retirement account, is a savings account with certain tax advantages that individuals can use to save (and invest) long term. IRAs are designed to encourage individuals to save for retirement. These accounts can be set up through a bank, broker, investment company, or various types of online brokerages. Anyone with proof of earned income can set up an IRA.
Through setting up an IRA, an individual can choose from a variety of investment avenues, including stocks, bonds, mutual funds, and ETFs (exchange traded funds). However, when you open a traditional IRA, higher risk investments are not fair game.
There are many different types of IRAs. These include, but are not limited to, traditional IRAs, Roth IRAs, SEP IRAs, and Simple IRAs. Each is designed for a certain purpose and operates differently with regard to taxation, eligibility, and withdrawal amounts/timing. Traditional IRAs are known for their tax advantages, and in most cases, allow individuals to reduce their end-of-year taxable income based on the amount contributed to the account.