IRAs: The Retirement Tool You Absolutely Need!

Uncle Sam doesn't often bestow gifts on us, but the Individual Retirement Account (IRA) is one that too many people ignore – at their peril.

We don't want you to ignore having an IRA for this reason: The single best step you can take to living the retirement of your dreams is to contribute the maximum amount allowed to an IRA.

So let's help you get started on the path to a safe and secure retirement by answering the basic question:

What's an IRA?

IRAs were created in 1974 to help folks who had no company retirement plan or those of us who realized that, lo and behold, retirement was sneaking up on us and we needed to start saving – fast!

In their simplest forms, an IRA is a savings and investing account that you may open at your local bank, credit union, your brokerage firm, and other financial institutions. But they go way beyond regular savings and investing accounts because of two distinct tax advantages that we just love – tax deductibility and tax deferral.

These advantages, combined with the very desirous effect of compounding over many years, can significantly boost your long-term wealth, so it's no surprise that many individual investors have beaten down the doors of their financial institutions to jump on board.

IRA assets across the country total about $4 trillion. That's an amazing amount, for sure. But sadly, less than 50 million households have actually opened IRAs, which means it's time for the rest of us to step up to the plate!

Don't Miss Out

If you aren't taking full advantage of an IRA, let's talk the three things we especially like about individual retirement accounts:

1. Nearly everyone is eligible to have an IRA. You just need "earned income" to qualify. (Learn more about IRA eligibility limits here.)
2. You have a practically unlimited choice of investment options for your money – stocks, bonds, mutual funds, exchange-traded funds, real estate investment trusts – almost anything your heart desires.
3. The amount you can contribute is constantly rising. For 2008, a maximum of $5,000 may be contributed to an IRA, $6,000 if you are 50 or older. And if you are 50 or over, you may make an additional "catch up" contribution of $1,000 per year. (Click here for complete information on contribution limits.)

And we haven't even started on the specific tax advantages yet! So let's talk about that now.

Next: Tax Advantages of a Traditional IRA