Individual Retirement Account (IRA)

A tax-deferred retirement savings account that allows individuals to deposit a limited amount per year ($3,000 for individuals in 2002). A traditional IRA may allow individuals, depending on their income and participation in employer-sponsored retirement plans, to deduct part or all of their contributions on their tax returns. Withdrawals made after age 59 1/2 are taxed at the current tax rate. In contrast, Roth IRAs allow individuals to withdraw earnings tax free anytime after the age of 59 1/2 after certain requirements are met, but the initial contributions are made with after tax dollars.