Another way to save money is to open an Individual Retirement Account (IRA). Government and employer-sponsored retirement accounts such as a 401(k) and an IRA are the best ways to save for your retirement. The money invested will continue growing, tax free, until you are eligible to begin drawing it out.
For the most part, IRAs are designed as long-term savings accounts. There are also short-term or fixed-term IRAs if you don’t want to have access to the money in less than 10 years. This type of account has advantages for a person who has a chunk of money saved and wants to increase its earning power, but to have access to it in 5 to 10 years to buy a house or other large ticket item.
There are several types of retirement accounts. Examples are 401(k) and 403(b) for employees at larger organizations, IRAs such as Regular, Spousal and Roth for just everyone, and Simplified Employee Pension Plan (SEP) IRAs, Keoghs and Savings Incentive Match Plans for Employees (SIMPLEs) for small business and the self-employed.
IRAs are the most powerful retirement vehicles available to most of us. They offer compound interest, reduce your taxable income, are tax-deferred and have consistent savings.