The individual retirement account is a personal, tax-deferred account for people who are employed.

You can set up an IRA at almost any bank, credit union, brokerage, insurance company, or mutual fund. There are a wide variety of investment options to choose from, and your earnings are untaxed until they are paid out of the plan.

Tax law lets you deposit up to $5,000 for each of 2009 and 2010 to your IRA—$10,000 for married people who file a joint tax return. If you are not covered by a qualified retirement plan at work—or, if covered, you fall below a certain income level—your IRA contribution may be fully or partially tax-deductible. The law also allows taxpayers age 50 and above to make an extra "catch-up" contribution of $1,000. These figures are totals for all traditional and Roth IRA accounts combined.

As with employer-sponsored tax-deferred plans, there are caveats. Any money you withdraw before age 59½ is taxed at your ordinary rate; plus, there may be a 10 percent penalty tax. Traditional IRAs require you to take your money out at age 70½. One bonus: if you were not permitted to take your IRA contributions as a tax deduction while you were working, you don’t have to pay taxes on them when you take your money out (your accrued earnings are still subject to taxes, however).

The Roth IRA is a variation that lets you withdraw principal and earnings tax-free after age 59½, as long as the contributions have been in the plan at least five years. Unlike traditional IRAs, Roth IRAs don’t require you to take distributions at age 70½, and you can keep contributing to them as long as you like as long as you have earned income. Unlike the traditional IRA, however, Roth IRA contributions are made with after-tax dollars—no deduction is allowed for Roth contributions.