Section 8.2 IRA’s
Subsection 8.2.1 IRA
An individual retirement plan is essentially a self-sponsored 401(k). An IRA is an account you open yourself and fund yourself. IRA’s are meant to act as methods to supplement retirement incomes.
Practically, IRA’s function a lot like employer-sponsored plans. You can contribute up to a certain amount (currently $7,000 per year). You can have either a traditional IRA or Roth IRA, depending on your taxation preferences.
One common misconception is that you cannot have both a 401(k) and an IRA. You absolutely can! And you should!
The main difference with an IRA and employer-sponsored accounts is when you see the tax benefits in a traditional account. In a traditional IRA, you still deposit money into an account after taxes are paid from your paycheck, making it feel like a Roth account. However, when you file taxes, you can then deduct the amount you contributed from your taxable income, which will increase your tax refund (or reduce your taxes owed).
