Types Of IRA Account
If you are not planning for you retirement, you are committing a mistake that can hurt you very much There are a number of options that you can look at for retirement. The most sought after option however is IRA account. The account is regulated by the rules and regulations of Government of United States though the Internal Revenue Service The concept of IRA is discussed in Publication 590 (2005) of the Internal Revenue Service.
There are five major types of IRA accounts. The most common option is Traditional IRA. The reason behind the popularity of this plan is that the contributions are tax deductible. You would not have to pay any income tax on the part of income which goes as your contribution to IRA. You must however be prepared to pay taxes on the distributions that you get from IRA. Early withdrawals, if any, are also subject to tax.
The second type of IRA account is Roth IRA. Senator William Roth introduced this variation to IRA and his name was given to the new plan. Roth IRA is a much more flexible plan in comparison to a Traditional IRA. In this plan taking early withdrawals is not as complicated as in the case of Traditional IRA. Moreover the contributions are also way more flexible. Distributions from Roth IRA are not taxable but your contributions are subject to Income Tax.
The third type of IRA is the SEP IRA. This type of Individual Retirement Account requires that the employer should also be involved in the entire process of savings. Here it the employer who is making contribution to the traditional IRA of his employees. The plan is to be initiated by the employer. Fully known as Simplified Employee Pension Individual Retirement Account, this type of IRA account is being used by many businesses to attract and retain the best talent with the organization. The fourth type of IRA account is SIMPLE IRA. This is another individual retirement account where the employer comes into picture. Here both the employer and employee make shared contributions to the account. The main feature of this plan is that the plan administration costs are very low. Other than that, this type of IRA is the same as a 401k plan. It comes with lower limits of contributions however. It also treated differently in comparison to other IRA account types. Self Directed IRA is the fifth type of IRA. In this plan the holder has a lot of control over the plan. He can decide how the investments are to be made. Hence the name Self Directed. Not all the types of IRA are available to every person. You should refer to consultants and use online or software calculators to audit your financial status and eligibility criteria and allowed contributions as well as average tax benefits. Only then would you be able to decide which IRA account would be the best for your future.
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