Individual Retirement Account

Individual retirement accounts are one of two types of individual retirement arrangements (IRAs) that provide tax advantages as you save for retirement. The other is an individual retirement annuity.

Both have the same annual contribution limits, catch-up provisions if you're 50 or older, and withdrawal requirements. In addition, both are available in three varieties: traditional deductible, traditional nondeductible, and Roth.

The primary difference between the two is in the investments you make with your contributions.

You open an individual retirement account with a financial services firm, such as a bank, brokerage firm, or investment company, as custodian. The accounts are self-directed, which means you can choose among the investments available through your custodian.

In common practice, however, perhaps because more people have individual retirement accounts, the acronym IRA tends to be used to refer to an account rather than annuity or arrangement.