What Is a Personal Retirement Account?

Historically, many retirees depended on Social Security, a company pension or a combination of both for income in their golden years. Since Social Security’s viability is questionable and many companies no longer provide pensions, personal retirement accounts are becoming the choice for retirement saving.


A personal retirement account is one that you create and control. The Internal Revenue Service provides certain tax advantages to encourage you to save for your own retirement. Personal retirement accounts can be invested in many different ways, including stocks, bonds, money markets, gold and other commodities, to name just a few.

Traditional IRAs

A traditional individual retirement account is one that you set up with a bank or other financial institution. You are fully responsible for making contributions to the account. The contributions you make can be deducted from your taxable income each year, reducing your tax bill. The IRS has limits on the amount you can contribute.

Roth IRAs

The Roth IRA became available in 1998. The money you contribute to your Roth IRA is not tax-deductible; however, your account grows tax-free. Withdrawal regulations are also more flexible than those established for traditional IRAs. As with traditional IRAs, there are contribution limits.

401k Accounts

Another type of personal retirement account is the 401k plan. It is an account set up and administered by your employer; however, you maintain ownership of the account. The monies you contribute to your 401k are subtracted from your gross wages prior to federal tax calculation and withholding; your contributions are nontaxable until distribution. Your employer may also contribute to your 401k as an employment benefit. Contribution limits apply.


A Savings Incentive Match Plan for Employees (SIMPLE) IRA can be set up by those who are self-employed or by companies with fewer than 100 employees. There are tax advantages for both the employer and the employee with SIMPLE IRAs. Like other personal retirement accounts, there are limits to the amount you can contribute.