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An individual retirement account (IRA) is an account that you set up and invest to save for retirement. A money market deposit account is a savings account that offers a slightly higher interest rate than savings accounts.
Investment Options
The Internal Revenue Service permits investing the funds in your IRA in a wide range of investments, including money market deposit accounts and money market mutual funds.
Contribution Limits
You can only contribute up to the annual contribution limits to an IRA money market account. For 2009 and 2010, the limit is $5,000 with an additional $1,000 added to the limit if you are 50 or older.
Benefits
Putting money that you are saving for retirement into an IRA will allow the money to grow tax-free. In addition, if you contribute to a traditional IRA the contribution is tax deductible. If you contribute to a Roth IRA, your withdrawals at retirement, including earnings, are tax-free.
Warning
When the money is put into an IRA, you cannot withdraw it before age 59 1/2 without paying a 10 percent early withdrawal penalty.
Considerations
Though money market accounts are secure, they usually give a fairly small return compared to riskier investments, such as stocks and mutual funds. If you have a while before retirement, consider investments that offer a higher potential return because you will be able to recover from a bad year.
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