Individual Retirement Accounts (IRAs)
An IRA is a tax-advantaged investment vehicle used by individuals to set aside funds for retirement. There are several types of IRAs to consider – traditional IRAs, Roth IRAs, Simplified Employee Pension (SEP) IRAs and Savings Incentive Match Plan (SIMPLE) IRAs. Regardless of type, an IRA cannot be held jointly – it must always be in an individual's name.
A traditional IRA is a retirement account in which individual taxpayers are allowed to contribute 100% of compensation up to a specified maximum dollar amount. Contributions to the traditional IRA may be tax-deductible depending on certain factors, such as the taxpayer's income, tax filing status and coverage by an employer-sponsored retirement plan.
Those who received taxable compensation during the year (or, if they file a joint return, their spouse having received taxable compensation), and who are not age 70 ½ by the end of the year, are eligible to make contributions to a traditional IRA.
Note 1: A working spouse may contribute to their non-working spouse’s IRA.
Note 2: If you contribute to a traditional IRA via pre-tax dollars, all distributions are taxable.
A Roth IRA is a retirement account that provides tax-free growth and is funded with after-tax dollars. Note: While distributions may be tax-free when redeemed, contributions are not tax deductible since they are made with "after tax" dollars.
Refer to the IRS website for eligibility requirements in contributing to a Roth IRA, which is based on a person's Modified Adjusted Gross Income (MAGI) and tax filing status.
Note: Because you contribute to a Roth IRA on an after tax basis, all distributions from a Roth IRA generally are tax free if certain requirements are met.
A SEP IRA is retirement account set up under a written arrangement that allows business owners to make deductible contributions for their own and their employee's benefit to the SEP IRA (a Traditional IRA). A SEP IRA is owned and controlled by the employee, and the employer makes contributions to the financial institution where the SEP IRA is maintained.
Visit the IRS website for more information about SEP IRAs.
A SIMPLE IRA is a retirement account set up under a tax-favored retirement plan that certain small employers (companies with less than 100 employees) can set up for their employees. Employees can have their salary reduced by certain percentage each pay period in addition to the employer making matching or non-elective contributions.
Visit the IRS website for more information about SIMPLE IRAs.