The Basics: What, Who, and How

Before Uncle Sam can entice you into an IRA, it's important to understand what it is and what to expect.

What is an IRA?

An Individual Retirement Account allows you to plan for your retirement on your own. It's not an investment itself, but it is an investment account that gets beneficial treatment from the tax code.

Can I invest in an IRA?

Some people can; some can't. IRAs generally focus on middle-income tax payers. The rich need not apply.

An IRA has specific rules about who can invest and how. Those rules just got better and more complicated. Just about anyone, below certain income levels (see story, above) can open an IRA. But not everyone gets equal treatment.

Check with your bank, broker, or financial adviser before you make your IRA moves. Or else do lots of reading once the new rules are finalized (They take effect next year). Otherwise, your taxes may be more than expected. You might even face a penalty.

You also need to know which IRA program works best for your tax bracket and stage of life.

How do I open an IRA?

That's the easy part. Just about any financial institution that will take your investment dollars will also plop them into an IRA. It takes a bit of paper work, and you have to know the rules.

Your investment company - banks, mutual funds, insurance companies - will send the forms and explanations, probably before you hang up the phone.

What types of financial products can I put in my IRA?

Most types are acceptable except those at the high end of the risk scale: commodities, options, most precious metals, tangible real estate (Some real estate investments are OK).