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What Is an IRA?

An individual retirement account (IRA) allows you to save money for retirement in a tax-advantaged way.

An IRA is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis. There are three main types of IRAs—Traditional, Roth, and Rollover—each with different advantages.

  • In a Traditional IRA, you make contributions with money you may be able to deduct on your tax return and any earnings can potentially grow tax-deferred until you withdraw them in retirement.1 Many retirees also find themselves in a lower tax bracket than they were in pre-retirement, so the tax-deferral means the money may be taxed at a lower rate.
  • With a Roth IRA, you make contributions with money you’ve already paid taxes on (after-tax) and your money may potentially grow tax-free, with tax-free withdrawals in retirement, provided that certain conditions are met.2
  • A Rollover IRA is a Traditional IRA intended for money “rolled over” from a qualified retirement plan. Rollovers involve moving eligible assets from an employer-sponsored plan, such as a 401(k) or 403(b), into an IRA.

Whether you choose a Traditional or Roth IRA, the tax benefits allow your savings to potentially grow, or compound, more quickly than in a taxable account. Our Roth vs. Traditional IRA Calculator can help you determine an appropriate option.

Why invest in an IRA?

Many financial experts estimate that you may need up to 85% of your pre-retirement income in retirement. An employer-sponsored savings plan, such as a 401(k), might not be enough to accumulate the savings you need. Fortunately, you can contribute to both a 401(k) and an IRA. A Fidelity IRA can help you:

  • Supplement your current savings in your employer-sponsored retirement plan.
  • Gain access to a potentially wider range of investment choices than your employer-sponsored plan.
  • Take advantage of potential tax-deferred or tax-free growth.

You should try to contribute the maximum amount to your IRA each year to get the most out of these savings. Be sure to monitor your investments and make adjustments as needed, especially as retirement nears and your goals change.

Next steps

Open a Fidelity IRA.
Opening an account is easy.

Contributing to an IRA
Find out four simple ways to fund your IRA and the importance of regular contributions.

Re:Discover the power of the IRA (13:33)
Watch this webinar to learn strategies for choosing and managing your IRA.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

1. For a Traditional IRA, full deductibility of a contribution is available to active participants whose 2012 Modified Adjusted Gross Income (MAGI) is $92,000 or less (joint) and $58,000 or less (single); partial deductibility for MAGI up to $112,000 (joint) and $68,000 (single). In addition, full deductibility of a 2012 contribution is available for working or nonworking spouses who are not covered by an employer-sponsored plan whose MAGI is less than $173,000 for 2012; partial deductibility for MAGI up to $183,000.
2. A distribution from a Roth IRA is tax-free and penalty-free provided that the five-year aging requirement has been satisfied and one of the following conditions is met: age 59½, death, disability, qualified first time home purchase.
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