IRA stands for individual retirement account and you need to start one in your 20’s! Why?
Because of this:
If you started saving for retirement when your were 25 and retired at 65-
$2,000/ year for 40 years= $560,000 (assuming an average 8% return)
If you started at 35 and still retired at 65-
$2,000/ year for 30 years= $245,000
Huge difference right? Experts say you should expect to need 80% of your current income to live comfortably in retirement. Social security provides about 40%.
The basics:
IRAs are essentially special savings accounts with great tax breaks. The two most common places to open an IRA are through a bank, where they are commonly IRA CDs and through brokerages such as E-trade. IRA CDs offer a fixed rate of return whereas brokerage IRAs can offer higher returns for higher risk.
Roth vs Traditional:
When is the money taxed?
Roth- when you put it in
Traditional- when you take it out
When must I take out the money?
Roth- more flexible if you need an early withdrawal
Traditional- withdrawals must start at age 70 1/2
There is a very thorough guide to IRAs that can by found here:
CNN Money Retirement