An individual retirement account or IRA is a retirement savings vehicle with tax advantages. IRAs are either tax-free or tax advantaged, but either way they help individuals plan and save in a way that suits their financial goals. There are two main types of IRAs–a traditional and a Roth. How Do IRAs Work? The most important thing to know is that you either pay taxes before funding your account or when withdrawing. In other words, an IRA can be after tax, meaning you pay taxes before funding the account, or tax deferred, when you pay taxes once you withdraw contributions. To encourage investors to keep money in their IRAs until retirement, there are penalties for withdrawing contributions early. As of 2023, withdrawals before 59 ½ could lead to hefty penalties by the IRS. There are exceptions to early withdrawals like using the money to pay for medical insurance premiums or after a job loss. IRAs also offer catch-up contributions–money they can add to an IRA that exceeds the contribution limit–for individuals closer to the retirement age. How do you open an IRA? Start by looking