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Individual Retirement Accounts (IRAs) function as personal, tax-qualified retirement savings plans. The earnings on these investments grow, tax-deferred, until the eventual date of distribution. Moreover, certain individuals are permitted to deduct all or part of their contributions to the IRA.
IRAs are set up as trusts or custodial accounts for the exclusive benefit of an individual and his or her beneficiaries. You can set up an IRA simply by choosing a bank, mutual fund company, brokerage house or other financial institution to act as trustee or custodian. The institution will give you the necessary forms to complete. A lesser-known alternative is to purchase an individual retirement annuity contract from a life insurance company. An individual cannot be his own trustee.
As an alternative option, you may be able to set up a "Roth IRA," contributions to which are not deductible, but from which withdrawals at retirement won't be taxed.
For more details on the ins and outs of IRA accounts, consider the following: