What are the different types of IRAs?
A. Traditional IRA. The Traditional IRA allows individuals to make an annual contribution up to specified maximum limits. Any earnings in the IRA can grow tax-deferred, meaning that you do not pay current tax on any account earnings until you take the money out. Traditional IRAs can help make it easier to maximize your retirement savings by allowing any money you earn on your IRA contributions to grow free from taxes within your account until withdrawn. When your earnings aren’t eroded by taxes year after year, they can compound faster. Distributions from Traditional IRAs are included in income at the time of withdrawal and may be subject to a 10% early withdrawal penalty if you are under age 59 1/2. As an incentive to contribute to Traditional IRAs, Congress allows some people to deduct their Traditional IRA contributions from their current income taxes. Use the IRA Evaluator to determine if you qualify for a tax-deductible IRA contribution. For more information, see “Understanding th
A Traditional IRA, if you are eligible, can be tax-deductible up to $4,000 or more annually. The interest you earn on your money is tax deferred. (You dont pay taxes on the money until you withdraw it.) Anyone who has earned income during the year and is under the age of 70-1/2 is eligible to open a Traditional IRA. A Roth IRA is not tax-deductible, but the earnings can be tax-free. Also, there is no maximum age to open or contribute to a Roth IRA, so anyone who has earned income may open one or make a contribution. A Simplified Employee Pension (SEP) is for those who own a small business or are self-employed. Taxes are deferred until the time of withdrawal, and maximum contributions are greater than those of a Traditional IRA. PLEASE CONSULT A TAX ADVISOR REGARDING YOUR SPECIFIC SITUATION.
top of page Traditional IRA. The Traditional IRA allows individuals to make an annual contribution up to specified maximum limits. Any potential earnings in the IRA can grow tax-deferred, meaning that you do not pay current tax on any account earnings until you take the money out. Traditional IRAs can help make it easier to maximize your retirement savings by allowing any money you earn on your IRA contributions to grow free from taxes within your account until withdrawn. When your earnings aren’t eroded by taxes year after year, they can compound faster. Distributions from Traditional IRAs are included in income at the time of withdrawal and may be subject to a 10% early withdrawal penalty if you are under age 59 1/2. As an incentive to contribute to Traditional IRAs, Congress allows some people to deduct their Traditional IRA contributions from their current income taxes, subject to income limits. The Roth IRA. As long as your income doesn’t exceed a certain level you can contribute
A. There are five different types of IRAs: 1. TRADITIONAL IRA You can contribute up to $2,000 per year into an IRA. The amount of this contribution that is deductible on your income tax return depends on your Adjusted Gross Income (AGI) and whether you are covered under an employer sponsored qualified retirement plan. Thus, depending on your filing status (Single, Joint, etc), and your AGI, your contributions may range from fully deductible to totally non-deductible. So even though you are eligible to contribute to your IRA, you may be in a position where none of these contributions are in fact deductible. 2. EDUCATION IRA You can put away up to $500 per year into an education IRA, the money grows tax-free and has preferential tax treatment upon distribution to the beneficiary who uses it for authorized education expenses. These plans are not very common in that they are very restrictive on who can make contributions to them, the amount of total contributions allowable each year, and t
One of the best ways to plan for retirement is by contributing to an IRA (Individual Retirement Account). However, there are five different types of IRAs that money can be deposited into. It is important to understand the function and limits of the different types of IRAs to make the most financially sound decisions when investing money. The first type of IRA is a traditional IRA, which is available to everyone and has no income restrictions. A traditional IRA allows the investor to contribute income to an individual savings account prior to it being taxed, because taxes are paid when the earnings are able to be withdrawn at age 59½. Withdrawal of funds is mandatory at age 70½. A certain amount of pretax contributions are tax deductible based on the adjusted gross income of the investor. In the event of a complete early withdrawal of funds, most people will pay a 10% penalty. A Roth IRA is another one of the different types of IRAs for an individual investor. A Roth IRA is only availab
