It is safe to assume that most people who are in the workforce today now about or at least have heard about individual retirement accounts, or IRAs. It is never too early to start planning for retirement, especially with the state that Social Security is in today. Individual retirement accounts are a way that workers can contribute money from their paycheck to their retirement plans without having to pay taxes on those funds. In other words, the funds are taken out of your pay and that reduces the amount of your taxable income. A lot of workers take advantage of individual retirement accounts in order to, not only contribute to their fund for when they are retired, but also to make their income tax work out a bit better in their favor.

There are several different types of individual retirement accounts:

Traditional IRA – The funds for this IRA are pre-tax funds, thus reducing the size of the worker’s taxable income for income tax purposes. Generally, transactions pertaining to and within the IRA are exempt from taxation, but, upon retiring, withdrawing monies from the account will be taxed as income.
Roth IRA – Funds in this IRA are added after the income has been taxed. All transactions within the IRA and even withdrawals after retirement are generally non-taxed.
SEP IRA – This used for small businesses or for those who are self employed. It enables them to contribute to an IRA in the employee’s name instead of a pension fund that was made in the name of the company instead.
SIMPLE IRA – This stands for “Savings Incentive Match Plan” and it is when the employer matches any contributions that the employee makes to their IRA.
Self-directed IRA – This type of IRA allows the owner of the account to invest on behalf of the entire account.

There are limitations to how much can be contributed to individual retirement accounts on an annual basis. The limitations usually vary by the year and the age of the person holding the individual retirement accounts. Also, you can withdraw monies from individual retirement accounts at any point of time, but there are few instances when you will not have to pay a penalty for doing so. There are many exceptions to the withdrawal penalty, but it really is just safe to assume that you should not withdraw money from your IRA until you are retired unless it you are in dire circumstances. That way, you know the money will be there when you are no longer working and when you will need it the most.

On March 15, 2012 By Richard Wilson

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Retirement Investment Vehicles – Individual Retirement Accounts

Retirement plans are important plans that every American should begin considering as soon as they begin working. There are a variety of retirement investment vehicles that can help a person save and plan for retirement. One of the most common investment vehicles for retirement is called individual retirement accounts, also known as an IRA. These accounts have a certain limit that can be invested in them per year. There are different types of IRAs that a person can use to invest in. There are Traditional IRAs, Roth IRAs and SEP IRAs. Each of these types allows people to invest for their retirement.

Traditional individual retirement accounts provide individuals with the ability to invest a tax deductible amount each year into an account that is used for investments. These accounts are usually managed by an investment management company who invests in various funds similar to mutual funds. Some retirement accounts do invest in mutual funds. Traditional IRAs provide an initial tax deduction for the year the money was invested, but when the funds are withdrawn either in a lump sum or in disbursement across a person’s retirement, they are responsible for paying the taxes as income tax in the amount that is required at that time. The advantage is the tax deductible investment today, and the disadvantage is the higher tax rate that the investor will pay during their retirement.

When people invest in Roth individual retirement accounts the tax is paid when the money is invested. There are no additional taxes that are taken out at the time the money is paid out. This can be an important factor for many people since the amount of taxes are assumed to be higher in the future than they are today. Many people chose to invest in a Roth IRA when they do not want to pay a higher rate of taxes later.

When business owners want to take advantage of individual retirement accounts, they can invest in SEP individual retirement accounts. This is a specific type of IRS account that allows an investor to invest a much higher dollar amount in per year. Many business owners who do not have employees chose this as a retirement savings option for themselves. Many times the contribution can be as much as 25% of the business owner’s income for each year. This is a much higher amount than the allowed amount in either the traditional or Roth IRAs.

On March 14, 2012 By Richard Wilson

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Individual Retirement Accounts – The Four IRA Types

Individual retirement accounts, or IRAs, refer to an assortment of retirement plans in the United States. As a blanket term, the IRA may refer to traditional IRAs, Roth IRAs, SEP IRAs, or SIMPLE IRAs. The traditional IRA is the most basic account. This is a tax-deferred savings account in which taxes are only paid upon making withdrawals during retirement. All of the interest, capital gains, and dividends are compounded annually without being subjected to taxes, which means that your individual retirement account will grow much faster than any type of taxable account. They come in two forms: nondeductible and deductible, the latter of which is arguably the better deal because all IRA contributions are tax-deductible, meaning that you get a tax refund.

Roth IRAs are great because they allow all money in the account to grow and compound free from taxation. The Roth is funded with after-tax money, so you already pay the taxes on the funds up front before putting it into the retirement account. Paying taxes now with the Roth IRA means that you won’t pay taxes in retirement when you go to withdraw the funds. The Roth also comes with more built-in flexibility than traditional IRAs because you can withdraw contributions without penalty for qualifying reasons, or once you reach the age of 59 and a half.

SEP IRAs are for small business owners or self-employed individuals who want a type of traditional IRA. All contributions to the IRA are tax-deductible and the money will not be taxed until retirement, just like a traditional IRA. SEP IRAs also come with a higher contribution limit than traditional or Roth IRAs. This means that individuals can contribute as much as 25% of their income up to $49,000 a year.

SIMPLE IRA stands for Savings Incentive Match Plan for Employees and is also a traditional type of IRA specifically for small business owners and the self-employed. Like traditional IRAs, contributions are tax-deductible and will grow tax deferred until retirement. Whereas the SEP IRA doesn’t allow employees to make contributions, the SIMPLE IRA does. A SIMPLE IRA requires employers to make contributions on the behalf of the employees, essentially becoming an employer-matched retirement fund. It’s also cheaper to run than traditional, Roth, or SEP IRAs and is great for small business owners who want to bring in highly-qualified employees by offering attractive retirement benefits. Research all IRA employment and income restrictions carefully to see which IRA works best for you.

On March 13, 2012 By Richard Wilson

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Individual Retirement Accounts – Who Needs to Invest in an Individual Retirement Account?

Every time the economy takes a sharp nose dive, you will hear economists talking about how this affects individual retirement accounts. It is important to remember that individual retirement accounts are much different than the 401(k) retirement program that you have at work. For the most part, an IRA is something that you set up and contribute to on your own. A 401(k) retirement account is something that your employer administers and both you and your employer make contributions to. Just because you have a 401(k) at work does not mean that you should not consider an IRA as well. There are several good reasons why you should consider teaming up your own retirement account with the retirement program you have at work.

The first reason for considering your own account is that only you can discontinue your participation in individual retirement accounts. Your employer can terminate your employment and give you a certain amount of time to roll your 401(k) over or you can just leave your money in the old account where there will be no further contributions made by anyone. Individual retirement accounts can follow you from job to job without ever losing a step. As long as you keep putting money into your own retirement account, you will see your retirement savings continue to grow. That may not be an option with a 401(k) if your employment is terminated.

Another good reason to consider individual retirement accounts is because you honestly have limited choices and control over your 401(k) at work. The choices you are given for your 401(k) are the range of options that your employer has chosen for you. It is entirely possible that you could look at your 401(k) investment options and not find anything you like at all. When you start looking at individual retirement accounts, you can choose any account you want and make any investment decisions that you see fit. When you are dealing with your own retirement account, you are the one that makes all of the decisions.

Individual retirement accounts also offer you a great place to put money that will help you add to your retirement savings. Your 401(k) account can be limited to a certain percentage of your income. Once you decide to maximize your 401(k) contributions, you have nowhere to go. With individual retirement accounts, you have another place to save for your retirement and another way to provide for your future.

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Individual Retirement Accounts – Why You Should Consider an IRA Today

Retirement Investment Vehicles – Individual Retirement Accounts

Individual Retirement Accounts – The Four IRA Types

Individual Retirement Accounts – Who Needs to Invest in an Individual Retirement Account?

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