Individual Retirement Account

Individual Retirement Account (IRA), tax-sheltered retirement plan, originally created (1974) to assist individuals not covered by company pensions. Under the U.S. tax law of 1981, IRA provisions were liberalized to allow individuals to contribute up to $2,000 per year (up from $1,500) to such accounts, and coverage was extended to employees already in corporate pension programs. These contributions are deductible from federal income tax payments. IRA monies may be placed in high-yield investments, with taxation deferred until money is withdrawn after retirement. In 1998, Congress instituted the Roth IRA, in which the earnings are tax-free but there are no tax-deduction benefits for the contributions made each year.

individual retirement account (IRA) A US pension plan that allows annual sums to be set aside from earnings free of tax and accumulated in a fund, which pays interest. Basic-rate tax is payable once the saver starts to withdraw from the account, which must be done no later than the participant's 70th birthday. The concession is not available to employees in a company-pension scheme or profit-sharing scheme.