Function

• The function of a retirement account is to provide a source of income for a person who is retired. In the United States, the government provides Social Security benefits for those who have worked and contributed to the program. However, these funds may not be enough to afford day-to-day living expenses during retirement. Retirement accounts can supplement Social Security benefits. Individuals should determine how much money they need to have available for retirement, then select one or more investment options through these accounts.
  
  

Considerations

• The most common retirement accounts are 401(k) plans, IRA (Individual Retirement Accounts), pensions and savings accounts. Some, such as the 401(k) and pension retirement accounts, are employer-sponsored accounts. The 401(k) account allows employers and employees to pay a portion of their pre-tax income into the account. Pensions are paid into by employers. An IRA may be set up by anyone through a credit union, investment company or bank. Savings accounts are managed solely by the individual investor.
  
  

Features

• A key feature of some retirement accounts is their tax advantages. With 401(k) and Roth IRA retirement accounts, funds are invested prior to being taxed. They grow untaxed until they are withdrawn during retirement. IRA's are the opposite. These are taxed before they are invested. They grow untaxed over time. There are no additional taxes when they are withdrawn during retirement.
  
  

Potential

• The benefit of investing in retirement accounts is their potential. The small investments made weekly, biweekly, monthly or even yearly help the account to grow over time. Compound interest helps to make these accounts very lucrative over time. The potential of these accounts is also directly related to the types of investments used. Stocks, bonds and other investment vehicles may be used to help these accounts grow over time.
  
  

Misconceptions

• One misconception about retirement accounts is that they can be invested in anytime. The sooner the investments are started, and the more regular they are, the more they will grow over time. Another misconception is that these accounts are difficult to manage. Most are managed through investment firms. The firms do the investment work around the investor's goals and risk tolerance. The investor does not need to do anything unless she would like to.