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 Traditional IRAs provide an initial tax deduction for the year the money was invested, but when the funds are withdrawn either in a lump sum or in disbursement across a person’s retirement, they are responsible for paying the taxes as income tax in the amount that is required at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.

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.

Login / Register

Retirement Investment Vehicles – Individual Retirement Accounts

Individual Retirement Accounts – The Four IRA Types

Contact

Certifications

Company

Login / Register

Contact

Certifications

Company

Save your cart?