Individual Retirement Accounts Is A Type Of Retirement Plan
An individual retirement account is a type of retirement plan account. This account provides certain tax advantages for retirement savings. These advantages can be enjoyed by the residents of the United States. There are several types of IRAs. These may either be categorized under employer-provided or self provided IRA plans. Here are different types of IRAs available for people in the United States.
a) Roth IRA: Roth IRAs are contributions made in conjunction with after-tax assets. All types of transactions made within the IRA do not have any kind of tax impact. Almost all withdrawals under Roth IRA are tax free. This individual retirement account is named after Senator William Roth. b) Traditional IRA: These are contributions made by the candidates and often tax deductible. All types of transactions and earnings within this type of IRA does not have any tax impacts. All the withdrawals under the category of traditional IRA at the time of retirement are taxed as income. c) SEP IRA: This is a type of provision that lets an employer to go for retirement plan contributions. These contributions are made to a traditional IRA set up in the name of the employee. The contributions in this case are not made towards a pension fund account in company's name. d) Simple IRA: This type of an individual retirement account is a simplified employee pension plan. This plan lets both employer and employee contributions. It is very similar to a 401(k) plan. However, these contributions come with lower contribution limits and much simplified administration. The account is known as IRA but treated separately. e) Self directed IRA: This type of individual retirement account that allows the account holder to make investments on behalf of the retirement plan. IRA is categorized into two other subtypes namely; rollover IRA and conduit IRA. These are considered obsolete under current tax law. Today, the functions of these laws have been subsumed by the traditional IRA. There are several restrictions on the type of funds that can be rolled into an IRA and the type of plans IRA funds could be rolled into. These were now significantly relaxed. Several additional acts have come into action to relax these restrictions further. Most of the retirement plans these days can be easily rolled in an individual retirement account or IRA after meeting certain conditions and most retirement plans can easily accept fudns from a particular IRA. The treatment given by tax to the above mentioned IRA types are similar; especially the rules related to distributions. An IRA can only be funded with cash or cash equivalents. Any type of transfer of an IRA to another type is strictly prohibited. The maximum contribution made towards an IRA in years 2006 and 2007 is about 100% of earned income or $4000. The limit for Roth IRAs and traditional IRA is four thousand dollars. |