Individual retirement plans are accounts that you can set up for yourself, without any connection to your employer, using income you have earned. Regardless of where you work or whether you change jobs, the individual plan always belongs to you. And you can establish an individual plan even if your employer also provides a separate employer retirement plan for you. Think of it as your own personal retirement savings account, separate from anything your employer funds or makes available.
There are two types of individual plans: traditional IRAs and Roth IRAs. Traditional IRAs are available to everyone. In a traditional IRA, you can contribute a maximum of $5,000 for 2010, or $6,000 if you reach age 50 by the end of the year. To make a contribution, you must have earned at least that much in taxable compensation during the year. The exact amount you are allowed to contribute will depend on whether you also contribute to a Roth IRA. That money can then grow, sheltered in the account, temporarily free of taxes. If you meet certain income requirements, you can even get a tax break on the money you contribute. You don't have to worry about taxes again until you take the money out.
Roth IRAs are available only to people who meet certain income requirements. The contribution limits for Roth IRAs are the same as those described above for traditional IRAs. The money will grow tax free. The exact amount you can contribute will depend on whether you also contribute to a traditional IRA. Although you will pay taxes on the money you contribute, you won't pay taxes on any of the growth, nor will you pay taxes on the money when you take it out of the account.
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