how does an ira work 
anyone with earned income can open and contribute to an ira including those who have a 401 k account through an employer the only limitation is on the total that you can contribute to your retirement accounts in a single year the best ira accounts will offer the ability to invest in a wide range of financial products including stocks bonds exchange traded funds etfs and mutual funds there are also self directed iras sdiras that permit investors to make all the investing decisions sdiras offer access to a broader selection of investments including real estate and commodities only the riskiest investments are off limits 2there are several kinds of iras each with different rules regarding eligibility taxation and withdrawals these types include individual taxpayers can establish traditional and roth iras small business owners and self employed individuals can set up sep and simple iras an ira must be opened with an institution that has received internal revenue service irs approval to offer these accounts choices include banks brokerages federally insured credit unions and savings and loan associations 3because iras are meant to be used to invest and maximize the growth of funds for retirement savings there is usually an early withdrawal penalty of 10 if you take money out before age 59 that s in addition to taxes you d pay on the withdrawn amount however there are some notable exceptions to the penalty rule withdrawals for educational expenses and first time home purchases among others 4a roth account is funded with post tax money so no further taxes are due when the money is withdrawn you can only contribute to an ira if you have earned income income from interest and dividends social security benefits or child support does not count 56