What Is an Investment Retirement Account?

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By W D Adkins
eHow Contributing Writer

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Investment retirement accounts are special savings/investing accounts that provide tax benefits to help you prepare for retirement. The Internal Revenue Service (IRS) regulations for each type of investment retirement account are different, however. These rules govern how much may be contributed, what types of investments are allowed, and when or under what circumstances withdrawals can be made from the account. Whatever type of investment retirement account you open, it's important to know and follow the regulations for that type of account. The IRS is known to be strict when enforcing their rules.

Types

The major investment retirement accounts are 401k plans, traditional and Roth IRAs (Individual Retirement Accounts), SEP IRAs (Simplified Employee Pensions) and SIMPLE IRAs (Simplified Incentive Match Plans).

Time Frame

In general, you may not withdraw funds from an investment retirement account until you reach 59 1/2 years of age. Early withdrawals violating IRS rules carry stiff penalties.

Exceptions

Most plans allow for exceptions if you are disabled, face serious financial hardships, and/or wish to use the money for a first home or qualified educational or medical expenses.

Benefits

Most investment retirement plans provide an up-front tax deduction for contributions. Taxes on earnings and contributions are paid only when the money is withdrawn after retirement.

Roth IRA

Roth IRAs are different from other investment retirement accounts because there is no up-front tax deduction. Instead, all earnings are tax-free when withdrawn after retirement.

Restrictions

Some investments are not allowed in IRAs or 401k plans. In general, purchasing derivative securities, most types of collectibles or leveraged investments is prohibited.