The Basics Of Individual Retirement Account
The Individual Retirement Account (IRA) is a special scheme available in US. It is a retirement savings and tax planning measure. Today IRA is considered an important aspect of the economic structure of the United States. The very first Individual Retirement Account was introduced in 1974 when certain amendments were made to the Internal Revenue Code of the United States by the Employee Retirement Income Security Act. This amendment dealt with sections 219 and 408 of the Internal Revenue Code.
There are different types of Individual Retirement Account available in the United States at present. Traditional Individual Retirement Account is the classic IRA available in US. Its USP is that all the contributions made to Traditional IRA are tax free. But when you get Traditional IRA distributions, you have to pay tax on them. Since the tax on senior citizens is lower, you still get a decent amount of tax benefit. A new form of IRA is the Roth IRA. Roth IRA was introduced by Senator William V. Roth in order to provide a more flexible scheme as compared to the Traditional IRA. While Roth IRA contribution does not provide any immediate tax benefit, the Roth IRA distributions are tax free. Another form of Individual Retirement Account is the SEP IRA (Simplified Employee Pension Individual Retirement Account). This IRA is an employer sponsored scheme. It allows the employer to make contributions into the Traditional IRA of the employee. The employer need not make any contribution to the Pension fund account in the name of his company. This scheme is typically availed by Small Businesses or Self Employed individuals. SIMPLE IRA is another Individual Retirement Account sponsored by the employer. This is a simplified plan for employee pensions. The main feature is that both the employer and employee can make contributions to this Individual Retirement Account. This is somewhat similar to a 401 (k) plan but that catch is that the limits of contribution are much lower in SIMPLE Individual Retirement Account. Another IRA is called the Self Directed Individual Retirement Account. This Individual Retirement Account is unique because in this IRA the owner of the account has the choice to decide where the IRA money would be invested. The funds are held by a trustee who must be properly qualified for this purpose. The trustee keeps all the records about the investments and transactions made with Individual Retirement Account money and files reports to the IRS. Individual Retirement Account is a great tax planning and future security measure. More and more people opt for Individual Retirement Account in order to reduce the dependence of social security schemes of Federal and State government. |