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What are the highlights of a good individual retirement plan?

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Quick Answer

A good individual retirement account is funded every year, includes diversified investments, and should not be depleted to pay off debts or other expenses. An individual retirement account, or IRA, is a savings account with significant tax advantages. People often think of an individual retirement account as a form of investment, but it consists of stocks, bonds, and mutual funds. Types of individual retirement accounts include traditional, Roth, SEP and SIMPLE IRAs, according to CNN Money.

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Full Answer

The return on an individual retirement account depends on the types of investments it contains. Diversifying investments is the best way to ensure security and growth. Investing all the money in stocks is a bad idea, but supplementing those investments with bonds and a savings account provides necessary stability, notes CNN Money. The amount of stock investments suitable for an IRA depends on how much risk a person is willing to take and when the IRA is opened.

Income gained through interest on investments, capital gains and dividends are not taxed in an individual retirement account. In a traditional IRA, taxes are only paid when money is withdrawn at retirement. In a Roth IRA, depositing money into the account incurs taxes, but retirement withdrawals are tax free, as reported by CNN Money. SEP and SIMPLE IRAs are traditional IRA options for self-employed people and small business owners.

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