types of iras

how does an ira work?

You can make annual contributions of up to $5000 to a traditional or Roth IRA. Limits for SEP or SIMPLE IRAs are higher. The limit increases to $6000 at age 50. 

Eligibility to start an IRA is open to most people although you must be at least 21 years of age. It can be opened at a financial institution(such as a bank, a brokerage, or a mutual fund firm) which acts a trustee and administers the account.

If you choose to manage your own investments in a ‘self-directed’ you must name a custodian who is responsible for administering the account. Funds held in the IRA must remain until you reach 59.5 years of age. Withdrawals made before age 59.5 incur a penalty tax of 10 percent of the amount withdrawn. There are some exceptions to early withdrawals.

sep and simple ira s

  • Employee sponsored IRAs that follow similar rules to traditional IRAs with higher contribution limits 
  • In an SEP, your employer can contribute up to 25% of your earnings, not exceeding $49,000. 
  • Self-employed indidivuals can contribute 20% of net earnings, not exceeding $49,000
  • In a SIMPLE IRA, your employer can match your contribution up $11,500 a year, for a combined annual limit of $23,000

roth IRA 

  • Contributions are not tax-deductible
  • Withdrawals can generally be made without tax or penalty after 5 years and after age 59.5
  • Income eligibility restrictions 

rollover IRA 

  • Likely to be more flexible and have lower fees than a 401(k)
  • Free from taxes or withdrawal penalties at time of transfer
  • Continued tax-advantaged growth of funds 

traditional IRA

  • Contributions may be tax-deductible 
  • Withdrawals are taxed as current income when made during retirement 
  • There are no income restrictions to start a traditional IRA

custodial ira

  • Available for minors who have earned income
  • Can be either a traditional or Roth IRA
  • Withdrawals can be made before 59.5 to pay for college 

inherited ira 

  • For indivudals who inherit a Traditional or Roth IRA from someone other than their spouse
  • IRA conversions or tax-deductible contributions are not allowed
  • Requires annual distributions to be made 

understanding iras

what is an IRA? 

An IRA is an individual retirement arrangement or individual retirement account. It is a type of savings account or trust that holds a variety of investments for retirement and has some tax benefits. Dependent on which type of IRA you choose, the account is either tax free or tax-deferred.

An IRA holds your investments in stocks, bonds, or funds and lets them grow. A traditional IRA lets investments grow tax-free, taxes are not paid until you withdraw from the IRA. 

should i start an ira?

Relying on Social Security to fund your retirement is not a wise choice. An IRA is one of many ways to secure your future and make sure you have enough money to live off of in retirement. There are a number of factors that determine whether or not an IRA is the right retirement savings strategy for you. 

Calculate what you can expect to receive from Social Security. 

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Understanding IRAs