IRA (Individual Retirement Account) entails several types of IRA accounts. There are Traditional, Roth, 401(k), SEP, DBP (Defined Benefit Plan), Traditional Non-deductible, and the Simple IRA. Let's start with the Traditional.
The Traditional IRA allows you to deposit pretax dollars into an account. That is, you get to your money out before the government has a chance to get there hands on it. The benefit is that the taxes on this money is deferred, so that when it's IRS time, you get a tax break. If the money is taken out early, there is a hefty penalty. The earliest that you can withdraw money from a Traditional IRA is at age 59 1/2, and the latest is 70 1/2. It's during this time that you begin to pay taxes. Before then, nothing but deductions.
The amount that can be contributed to a Traditional IRA varies. You can contribute as much as $5,000. However, if you are are 50 years of age or older, the maximum contribution is $6,000.
An SEP (Self-employed retirement Account) are for people who are self-employed. Those who are business owners receive wonderful tax breaks for SEP accounts. If you work for yourself, and you don't have anyone else working for you, the government will allow you to deposit up to $49,ooo (cost of living adjustments made yearly) or 25% of your income. The money is tax deductible, since it comes from pretax dollars.
The sooner an IRA is started, no matter which one you choose, the sooner you can began to benefit. Take a page from the way the government does things-- they make sure taxes owed to them are taken out first. Do the same when it comes to your IRA-- have it automatically deducted from your paycheck. You can't spend what you don't have, and you'll be the one to benefit.