What is an IRA?

Simply put, an IRA is an investment account that you can use to save for retirement.

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How does an IRA work?

Think of an IRA as a bucket. You choose how you want to fill that bucket. You can fill it with investments like stocks, bonds, mutual funds, exchange-traded funds (ETFs) and more.

When investments are in this bucket, they offer tax advantages that regular investments don’t offer.

Why is an IRA beneficial?

People use IRAs to invest for retirement because of the tax advantages and the value of compounding.


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Tax advantages of IRAs

An IRA has tax advantages that don’t apply to other types of investment accounts.

Tax advantages are based on the type of IRA you choose:

  • Traditional: You can deduct the amount you contribute from your yearly taxable income*
  • Roth IRA: In retirement, you can withdraw the funds tax-free
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How compounding works

The money you invest is compounded year over year, helping it grow over time.

Compounding can create a snowball effect, as interest earned is reinvested and can make more money.

How does an IRA differ from a 401(k)?

401(k)s and IRAs are two ways to invest for retirement. It’s not uncommon to have both to maximize the benefits of each while saving for retirement.  


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Set up

401(k): Usually part of an employer’s benefits package, where they have an agreement with an investment broker to offer investments. 

IRA: You set it up yourself through the bank or an investment broker, like U.S. Bancorp Investments.

An IRA is also a common option for those whose employers don’t offer a 401(k) option: those who are self-employed, own their own business or are part of the gig economy. 


Investment options

401(k): An employer-sponsored 401(k) plan usually has limited investment options, and many times your portfolio is added to a general target-date fund.

IRA: You can choose any mix of investments to include in your IRA. You can make these decisions yourself or use a guided investment solution to fill your bucket. 

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Additional contributions

Whether you invest enough in a 401(k) to receive the company match or you max it out, an IRA is a way to add even more toward your retirement.

You can complement a 401(k) with an IRA if you stay below the investment limits.

  • 401(k): $20,500/year ($27,000 if age 50+)
  • IRA: $6,000/year ($7,000 if age 50+)


Said another way, you can max out both for a total of $26,500 ($34,000 if age 50+) per year. 

How do you open an IRA?


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Automated investing

Offered exclusively by U.S. Bancorp Investments

Managed for you

Effort: Low

An online investment portfolio is built for you based on your preferences. Your account is monitored and adjusted as the market fluctuates.

Works well if… you are starting out and want a diversified mix of investments selected and managed for you.

hand self direct


Offered exclusively by U.S. Bancorp Investments

Manage your own

Effort: High

Complete freedom for the hands-on investor. Buy and sell specific investments online.

Works well if… you are confident in making your own investment decisions.

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Financial professional



Effort: Varies

Work with a professional to create your financial plan.

Works well if… you have more sophisticated or complex financial needs or prefer personal guidance. 

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IRA tips 

Why does April 18—Tax Day—matter?


Last year’s taxes

If you open an IRA before April 18, you can deduct your contribution on the filing year’s taxes. This can reduce your taxable income for that year.*

Contribution limit

The amount of money that you contribute to an IRA before April 18 counts toward the prior year’s limit. For new IRAs, it is kind of like a jumpstart, since you could basically contribute $6,000 before April 18 and have the whole next year to count toward that year’s limit. 

What’s the difference between a Roth IRA and a Traditional IRA?

The biggest difference is the tax advantage. There are also differences related to withdrawals and required distributions.


Roth IRA

Tax implications: “Tax-free.” When you withdraw money after retirement, you are not taxed on it. 


Tax implications: “Tax-deferred.” You can receive a tax deduction on the money you place in the account. When you withdraw the money in retirement, it will be taxed as ordinary income at that time. 

Investment and insurance products and services including annuities are:
Not a deposit ● Not FDIC insured ● May lose value ● Not bank guaranteed ● Not insured by any federal government agency

*Your deduction may be reduced or eliminated based on income.

U.S. Wealth Management – U.S. Bank | U.S. Bancorp Investments is the marketing logo for U.S. Bank and its affiliate U.S. Bancorp Investments.

The information provided represents the opinion of U.S. Bank and U.S. Bancorp Investments and is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific investment advice and should not be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation.

U.S. Bank, U.S. Bancorp Investments and their representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.

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 Deposit products are offered by U.S. Bank National Association. Member FDIC.

Credit products offered by U.S. Bank National Association and subject to normal credit approval.

U.S. Bank is not responsible for and does not guarantee the products, services or performance of U.S. Bancorp Investments, Inc.

For U.S. Bancorp Investments:

Investment and insurance products and services including annuities are available through U.S. Bancorp Investments, the marketing name for U.S. Bancorp Investments, Inc., member Bancorp FINRA and SIPC, an investment adviser and a brokerage subsidiary of U.S. Bancorp and affiliate of U.S. Bank.

U.S. Bancorp Investments is registered with the Securities and Exchange Commission as both a broker-dealer and an investment adviser. To understand how brokerage and investment advisory services and fees differ, the Client Relationship Summary and Regulation Best Interest Disclosure are available for you to review.

Insurance products are available through various affiliated non-bank insurance agencies, which are U.S. Bancorp subsidiaries. Products may not be available in all states. CA Insurance License #0E24641.

Pursuant to the Securities Exchange Act of 1934, U.S. Bancorp Investments must provide clients with certain financial information. The U.S. Bancorp Investments Statement of Financial Condition is available for you to review, print and download.

The Financial Industry Regulatory Authority (FINRA) Rule 2267 provides for BrokerCheck to allow investors to learn about the professional background, business practices, and conduct of FINRA member firms or their brokers. To request such information, contact FINRA toll-free at 1-800-289-9999 or via https://brokercheck.finra.org. An investor brochure describing BrokerCheck is also available through FINRA.

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