Individual Retirement Account (IRA)
Definition
A personal retirement account for saving and investing. Traditional IRAs offer pre-tax contributions and tax-deferred growth. Roth IRAs offer after-tax contributions and tax-free growth. Contribution limits are lower than 401(k)s but more flexible.
Why It Matters
IRAs are essential for retirement savings, especially if your employer doesn't offer a 401(k). Tax-deferred or tax-free growth is powerful. You control investments (not limited to employer's menu). Contribution limits reset annually.
Example
Contribute $7,000 to a Roth IRA at age 25, earning 8% returns. By 65, it grows to $2.2 million — all tax-free. Same contribution to a taxable account: you'd owe 15-20% capital gains taxes, leaving you $1.8 million.