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Individual Retirement Accounts are also known as IRAs. Do you know that according to a Congressional Research Service report, savings held in IRAs have grown steadily from $85 billion in 1983 to $2.5 trillion at the end of 2001. This huge improvement has mainly been due to the great tax benefits.

Government and employer sponsored retirement accounts are indeed the best way to invest for retirement.

Money saved regularly for a length of time becomes huge due to the compounding of interest. And, money that is compounding steadily actually advances by more in the later years. So the longer the money is compound, the more the benefit. That is why it is always better to start saving from an early age. Consistently saving over 20 to 30 years leads to a huge sum, which becomes most useful in the later years of one's life, when it is needed most. Retirement accounts also function as personal tax savings plans. In other words, you do not need to pay taxes on the amount you invest.

Individual Retirement Accounts are set up as trusts or custodial accounts for the exclusive benefit or an individual and his or her beneficiaries. Setting up the account is easy too – all you need to do is just select a bank, mutual fund, brokerage house or a financial institution to act as trustee or custodian. The institution will offer the necessary forms to complete and explain the formalities.

There is another alternative and that is to purchase an individual retirement annuity contract from a life insurance company.

However if you decide to sell your investment and get more than the purchase price, then you will need to pay capital gains tax on your retirement investments. You will also pay tax on any dividends that you may have received.

Spousal retirement accounts allow spouses to take full advantage of IRAs, regardless of the other spouse’s retirement arrangements.

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