Individual Retirement Accounts
View PDF | Print View
by: DanielBeckett
Total views: 2
Word Count: 397
IRAs are a form of retirement fund that allow US citizens to lower their tax owed. IRAs can either be offered by employers or created by individuals. Since funds are contributed directly to IRAs, most are tax free under US tax law.
Forms of IRAs
There are a number of different types of IRAs that offer different advantages. Traditional IRAs are the base, and the difference is what defines the other IRA types. Roth IRAs differ from other IRAs in that contributions are made after tax, so withdrawals are tax free.
Though Traditional and Roth IRAs are the most popular, there are several other forms of IRAs, including SEP IRAs (which are often used by smaller companies or self-employed people), SIMPLE IRAs (more similar to 401(k) plans than other IRAs), and Self-Directed IRAs (which allow an individual to manage their own fund).
Previous versions of US tax law included other forms of IRAs. Rollover, Conduit, and Educational IRAs are no longer available for formation under current US tax law.
Despite their differences, the tax treatments required for IRAs are very similar. The only major difference is for Roth IRAs, which are taxed at withdrawal instead of deposit.
Deposits
Money is the only type of asset allowed for contribution to IRAs. The current limit on deposit is $5000 a year, with an additional $1000 allowed for anyone over age 50. Whatever the age, no one can deposit more than their yearly income.
Funds can be transfered between IRAs and most other retirement accounts. There are a few exceptions, but for the most part IRAs and other retirement accounts can be freely combined.
Withdrawals
Like most retirement plans with tax benefits, there are strong penalties for withdrawing funds before reaching retirement age, here defined as 59 and 1/2 years. However, there are a handful of exceptions, including education expenses for the holder or their children and grandchildren, disability, and a one-time withdrawal to buy a first home.
IRAs also require the holder to withdraw funds at a certain point, or the funds that should have been withdrawn will begin to be lost. When a holder reaches the age of 70 and 1/2, they must begin withdrawals.
IRA Holdings
With the exception of Self-Directed IRAs, IRAs are generally managed by designated managers. IRAs are usually composed of securities. Some other assets are often allowed, but many managers discourage their inclusion.
About the Author
For more information about saving, saving for retirement, and increasing your returns on retirement accounts, please visit Free Stock Trading Signals.
HTML For Publishers
Please note: This article is free to reprint but all links must remain active.
Rating: Not yet rated
