Individual retirement accounts, or IRAs, are excellent retirement-saving tools, but unfortunately, they're not well-understood by many Americans. With that in mind, here are the answers to 15 commonly asked IRA questions that can help you get started.

1. What is an IRA?

IRA stands for "individual retirement account," or "individual retirement arrangement." It is a type of investment account designed to help Americans save and invest for retirement.

Jar of coins labeled "Retirement" next to clock and stacks of coins.

Image source: Getty Images.

2. Why should I use an IRA to save for retirement?

Americans as a whole are not doing a great job of saving for retirement, and IRAs are intended to give incentive to save more aggressively through tax advantages. Money invested in an IRA is not subject to annual capital gains or dividend taxes, and depending on the type of IRA, savers could qualify for a tax deduction or tax-free retirement income.

3. What's the difference between a traditional IRA and a Roth IRA?

The two main types of IRAs are traditional and Roth; the biggest difference between the two is the tax treatment. A traditional IRA may qualify for an immediate tax break for contributions, up to the IRS's annual limit, but distributions from the account will be treated as taxable income. On the other hand, a Roth IRA does not qualify for an immediate tax break, but qualifying withdrawals will be 100% tax-free. Because of the after-tax nature of Roth IRA contributions, there are several other benefits to this type of IRA that investors should be aware of.

4. Can all investors take advantage of an IRA's benefits?

Not exactly. Anyone can contribute to a traditional IRA, but the ability to take the tax deduction is limited by income and whether your employer offers its own retirement plan or not. With a Roth IRA, the ability to contribute to an account is income-restricted, although there is a "backdoor" method of contributing. All of the IRA income limitations are adjusted annually.

5. How much can I contribute to my IRA?

For 2017, the IRA contribution limit is $5,500, with an additional $1,000 catch-up contribution allowed for individuals who are 50 or older. This limit can change in the future to keep up with inflation, and contributions can be made during the calendar year or in the following year up until the April tax deadline. For example, IRA contributions for 2017 can be made from Jan. 1, 2017 through Tax Day on Tuesday, April 17, 2018.

6. Can I have a traditional IRA and a Roth IRA?

Yes, you can have multiple IRA accounts. You can have a traditional IRA and a Roth IRA, or several of each. However, it's important to point out that the contribution limit is per person, not per account. Your total contributions for the year cannot exceed $5,500 (or $6,500 if you're 50 or older) between all of your IRAs.

7. How much money do I need to open an IRA?

It depends on your brokerage, but the answer is typically "not much." Many brokers have no minimum initial deposit for retirement accounts, meaning that you can literally open an account with one dollar.

8. Can I contribute to an IRA if I have a 401(k) at work?

Yes, but your ability to take a traditional IRA deduction can be restricted if you or your spouse are eligible to participate in an employer's retirement plan. Participating in a 401(k) or similar retirement plan at work has no effect on your ability to contribute to a Roth IRA, but remember that there are Roth IRA income limitations that apply to everyone.

9. Why would I want to contribute to an IRA in addition to my 401(k)?

If you want to save more for retirement, it might seem logical to simply increase your 401(k) contributions and keep all of your retirement savings in one place. However, there are a few key advantages to IRA investing.

For one thing, whereas your 401(k) probably has a few dozen mutual funds to choose from, you can invest in virtually any stocks, bonds, or funds you want in an IRA. Plus, there are situations where you can use your IRA early that don't apply to 401(k)s, such as for a first-time home purchase or to pay college expenses.

10. Should I buy individual stocks in my IRA or stick to mutual funds and ETFs?

It depends. If you have the time, desire, and knowledge to research and select individual stocks, we certainly encourage you to do so. However, if you don't, a portfolio of low-cost index funds may be the best investment strategy for you.

11. What is a rollover IRA?

A rollover IRA refers to an IRA that is created with an old employer's retirement plan, such as a 401(k). When you leave your job, you have several options with your retirement savings, and one is to transfer, or "roll over," the account into an IRA.

12. Can I convert my traditional IRA to a Roth IRA?

You can convert from a traditional IRA to a Roth IRA -- in fact, that's the way to get around the Roth IRA income limits if you earn too much. However, be aware that a Roth conversion can be a taxable event if you received a traditional IRA deduction for any of the money you've contributed to the original account.

13. My spouse doesn't work. Can I set up an IRA for them?

One of the requirements for contributing to an IRA is earned income, meaning that if you don't work, you can't contribute to an IRA. However, there is an exception in the case of married couples where one spouse doesn't work (or earns less than the annual contribution limit). Known as a spousal IRA, the rules state that the working spouse can contribute to an IRA on the other spouse's behalf, as long as the working spouse earns more than both contributions combined.

14. Can I take a loan from my IRA?

The short answer is no. Unlike with a 401(k) and other employer-sponsored retirement plans, there is no such thing as an IRA loan. However, by taking advantage of the IRS's 60-day rollover rule, it's possible to borrow money from your IRA on a short-term basis. Just be sure you can replace it in time, or you could face a hefty benefit and potentially a big tax bill, as well.

15. When can I withdraw money from my IRA?

Generally speaking, you need to be 59 1/2 years old to withdraw money from your IRA without facing a 10% early withdrawal penalty from the IRS. However, there are some exceptions, like the first-time homebuyer and college expense withdrawals I mentioned earlier. In addition, it's worth noting that Roth IRA contributions (but not investment returns) can be withdrawn at any time, for any reason.

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