Individual Retirement Account or IRA is a saving account for retirement to help retiree save on taxes with big tax breaks, making it an ideal way to save money for his retirement. It’s not an investment but a saving account that is locked for at least five years from the time of opening account and lets you withdraw after you are 59.5 years without any penalties. It can be funded with any investment –stocks, mutual funds, bonds, or index funds.

It allows an individual to save with tax-free growth or on a tax-deferred basis.
There are also choices in IRA plans for investment, which can be made on the grounds of person’s income, time for retirement and other factors. These are:

Traditional IRA plans
These can be chosen to save salary tax deduction, and earnings potentially grow tax-deferred until retiree withdraws them in retirement. At withdrawal, after 59.5 years of age, the money may be taxed at a lower rate.

Roth IRA plans
Retiree makes a contribution with money he has already paid taxes on (after-tax) and saved money may potentially grow tax-free, with tax-free withdrawals after retirement, provided that certain conditions subject to saving institution are met.

Rollover IRA plans
It is an employer-sponsored plan. It is a traditional IRA intended for money “rolled over” from a qualified retirement plan. It involves moving eligible assets from an employer-sponsored plan, such as a 401(k) or 403(b), into an IRA.
The retiree should decide the IRA type best suited to his needs for maximizing his potential earnings.

Choose IRA plans over the regular savings account.
Consider that you are in the position of having financial stability, say at your late 20’s, when you have money on hand for now, and you are thinking about your retirement. You will obviously want to save some for those rainy days by stashing your earnings in a bank account.

Act smarter by doing that through IRA. Consider establishing an individual retirement account (IRA). You have three choices for IRA investment as explained above. While money is sitting in the IRA or 401(k), it continues to grow tax-free. Even during the withdrawals during retirement, if the saving is taxed, it stills not a bad deal.

The reason being tax retiree pays on his income after retirement is so low, that he gets huge savings in taxes when he retires. However, if you don’t want to tie up your money for 40 years, a cash account is a great way to start.

But still, from the point of long-term savings, IRA plans still stands unbeaten for the long haul. It’s established the fact that long-term investments are subject to market risks as they may for short periods of time, lose money. But the constant long-term interest in IRA plans makes it worth taking the risk because even if short-term market risks might influence the saving, compounded saving for around 40 years will overcompensate for any loss.
With a savings account, the interest depends on the method the bank uses to calculate compound interest. It is seen that a lower rate compounded daily may earn more interest than a higher price compounded weekly, monthly, semi-annually or annually. While for IRAs, the interest can depend on the method the financial institution uses to gain interest which mostly pays off better than aback account.

The more you put in investment in IRA plans, the more you end up with interest and appreciation at the end of your retirement.

More Motivation
If you are in your early 30’s or under, a mark that you will retire at a higher tax rate where you are now, considering you are at starting phase of your career. In such scenario, Roth IRA is better because it offers the advantage of the tax-free growth.

Traditional IRAs are better for individuals who start saving for retirement later in their life, where they will probably retire in an equal or lower tax rate than the one they were in during the point of their career when they start saving.
IRA investment allows access to guaranteed retirement income options to retirees. This saves them from the risk of outliving their retirement savings.
The IRA plans are more liberal with beneficiary payout options, and they also permit lifetime distributions. Since taxes are not due on the IRA account’s holdings until they are withdrawn, retiree’s heirs can distribute out withdrawals for an extended period to minimize taxes which also gives them stability and security.

Downsides of IRA
Each IRA plan has eligibility restrictions based on retiree’s income or employment status. And all have caps on how much he can contribute each year and withdrawal penalties in most cases for taking out money before the designated retirement age, mainly traditional IRAs.
So, for beginner investors, it’s a great way to start saving for the future.