An IRA is a personal retirement savings plan, established by an individual. Your contributions are tax-deductible (if you meet certain income requirements), and all earnings from your IRA are tax-deferred until withdrawal. No joint ownership is allowed. The Employee Retirement Income Security Act (ERISA) effectively established IRA accounts in 1974 for the 1975 tax year.

While there is no minimum age rule to establish an IRA, an individual must be under the age of 70 1/2 for the entire year to be eligible to make a regular contribution to the traditional IRA. Under the old tax laws, the maximum amount you could contribute to an IRA each year was $2,000 for an individual or $4,000 for a married couple (even if one spouse earns less than $2,000 or has no earnings for the year, as long as the joint income is as least $4,000). Beginning in 2001, the IRA contribution limit will increase until it reaches $5,000 in 2008 (and indexed for inflation after that). This means that a couple filing jointly will be able to contribute up to $10,000 to their IRAs in 2008. Depending on your income levels and whether you have other employer-sponsored pension plans, your contribution may be partially or completely tax deductible. You can begin withdrawing your money at age 59 1/2, or you can let your IRA continued to grow tax-free until you reach age 70 1/2; then you must begin taking "required minimum" distributions, also known as RMDs.

With an IRA, there is a 10% penalty for withdrawing the money before you reach age 59 1/2. However, there are exceptions, such as paying for qualified higher education expenses or for qualified "first home" expenses. The Bancorp Bank Upper Midwest HSA’s section on Individual Retirement Accounts provides detailed information on income requirements, distribution schedules and withdrawal penalties associated with IRAs.

To see just how much your savings can grow in a tax-deferred IRA, use The Bancorp Bank Upper Midwest HSA's IRA Savings Calculator. Or to determine how much you should deposit in your IRA to reach a retirement goal, use our IRA Deposit Calculator.