What is the primary purpose of an Individual Retirement Account (IRA)?

The primary purpose of an Individual Retirement Account (IRA) is to accumulate tax-deferred income, allowing individuals to save for retirement while potentially reducing their taxable income in the present. With an IRA, contributions may be made pre-tax (for traditional IRAs), meaning the funds grow without being taxed until they are withdrawn during retirement. This tax-deferral feature encourages individuals to save more for their future by lowering their immediate tax burden and allowing their investments to compound over time without the drag of annual taxation.

In contrast, accumulating taxable income does not align with the primary goal of an IRA, as this would defeat the purpose of providing a tax-advantaged way to save for retirement. Similarly, while insurance benefits and managing investment risks are important concepts in financial planning, they are not specific to the fundamental purpose of an IRA. An IRA is primarily a savings vehicle focused on long-term growth and retirement planning through tax efficiency.