While many taxpayers already know about Individual Retirement Arrangements, or IRAs, and have set up an IRA with a bank or other financial institution, a life insurance company, mutual fund or stockbroker, there are other taxpayers such as those new to the workforce who may not understand how IRAs help them save for retirement. With this in mind, here is a list of basic terms to help people better understand their IRA options:
Contribution. The money that someone puts into their IRA. There are annual limits to contributions depending on their age and the type of IRA.
Distribution. The amount that someone withdraws from their IRA.
Traditional IRA. An IRA where contributions may be tax-deductible. Generally, the amounts in a traditional IRA are not taxed until they are withdrawn.
Roth IRA. This type of IRA that is subject to the same rules as a traditional IRA but with certain exceptions:
Savings Incentive Match Plan for Employees. This is commonly known as a SIMPLE IRA. Employees and employers may contribute to traditional IRAs set up for employees. It may work well as a start-up retirement savings plan for small employers.
Simplified Employee Pension. This is known as a SEP-IRA. An employer can make contributions toward their own retirement and their employees’ retirement. The employee owns and controls a SEP.
Rollover IRA. This is when the IRA owner receives a payment from their retirement plan and deposits it into a different IRA within 60 days.
For more information about this topic, don’t hesitate to call the office today.
Any accounting, business or tax advice contained in this article, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.