The traditional IRA, otherwise known as an individual retirement account, enables an individual to save for his or her retirement, without paying taxes on contributions until they are withdrawn in retirement, beginning at age 59. If you take distributions before reaching this minimum age, you will be subject to a 10% penalty.

Contributions made over the years may be eligible for a tax deduction to lower your income tax liability while you’re of working age, depending on the circumstances of your tax return (such as filing status and income) and contribution amount. In some cases, contributions you make to your IRA will not be tax deductible. When the money is withdrawn for retirement, you are more likely to be in a lower tax bracket, meaning the money you save for retirement is taxed at a lower rate.

Contributions are capped annually, meaning you can only contribute a finite amount of your income every year, until you reach age 70. At this point, whether you need the money or not, you must start taking distributions. If you open the account at age 50 or older, or find that it has been underfunded in previous years, you may be able to contribute a higher annual maximum amount of income. This allows you to catch up so that you have a substantial amount of revenue in your account when you’re ready to retire. The maximum sum of money you can contribute to your IRA may change with each tax year.

You can open an IRA at a bank, mutual fund, or with a brokerage.