An individual retirement account is a method for establishing a retirement savings plan. Usually, an IRA allows you to defer taxes until after you retire. It is tool for setting aside funds with eligible tax-free distributions. Although withdrawals and capital gains from IRAs are taxed as income, the tax rate may be lower because income is likely less after retirement. The government establishes annual contribution limits that rise with inflation. However, contributors age 50 and older can make slightly higher contributions to catch up. The inherent tax savings of contributing to the account make IRAs significantly worthwhile individual tax management tools.
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