What is an IRA?

An IRA stands for an Individual Retirement Account, and it's a way for Americans to put money away for their future self. This money doesn't get taxed the same way as regular income. There are several different types of IRA, but here, let's just talk about the Traditional IRA. You can open an account at most banks or brokerage firms.

The basic idea is: save money for your retirement, so that you can stop working when you're older, and still have cash for your expenses. The dollars you put in a traditional IRA don't get taxed until you start taking money out, and you're supposed to wait until you're 59 1/2 before you start making withdrawals. You're required to start taking out money when you're 72.

If you want to take your money out before you're just shy of 60, there are (wait for it...) penalties! That just means the US government is encouraging people to let the money stay invested until retirement age, and you'll pay more to the government if you take it out sooner.

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