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| Overview More on IRA types | An IRA, or Individual Retirement Account, is an investment tool created by the US Government to supplement retirement income. An IRA is generally available to any individual who receives taxable compensation throughout the year. IRS Publication 590 provides information on determining what types of compensation are considered when determining your taxable income. |
| Traditional IRA | If you are under age 70 ? and have earned income, most people can contribute $2000 per year to a Traditional IRA. Contributions may be tax-deferred and distributions are taxable. Consult your tax advisor to determine if your annual contributions to your Traditional IRA are tax-deductible. |
| Roth IRA | The Roth IRA became available beginning in 1998. Contributions to Roth IRAs are not tax-deductible, but qualified distributions are then tax free later. You may wish to contact a tax advisor regarding contribution eligibility and/or distribution rules. For two great articles on Roth IRAs, written in plain English by Jane Bryant Quinn, click here. |
| Rollover IRA | Also known as a Conduit, Non-contributory IRA. This type of IRA is designed as a holding place for funds distributed from a Qualified Retirement Plan (401(k), 403b, etc). Distributions transferred to a rollover IRA are not subject to any contribution limits, and the distribution may be eligible for subsequent transfer into a qualified retirement plan available through a new employer. To retain this eligibility, the IRA must be composed solely of the original distribution and earnings (i.e., no other contributions or rollovers may be added to or mingled with the IRA), and the new employer's plan must permit the acceptance of rollover contributions. |
| SEP IRA | The Simplified Employee Pension IRA is an arrangement that allows an employer to make tax-deductible contributions to the SEP IRAs of eligible employees. This type of IRA was created for self-employed individuals and smaller companies. The account takes the form of an Individual Retirement Account and all contributions are made by the employer. |
| SIMPLE IRAs | The Savings Incentive Match Plan for Employees is a retirement plan which is similar to the conventional 401(k) plan for employers having 100 employees or less. Contributions to SIMPLE IRAs are made by the employer by withholding salary from employees. The SIMPLE IRA can be an individual retirement account or an individual retirement annuity. |
| Education IRAs | An Education IRA (EIRA) designed to provide funds allowing a beneficiary to attend a program of higher education. There is no tax deduction allowed for the contribution, but all deposits and earnings may be withdrawn free of tax and penalties if used to pay for higher education costs. Contributions are limited to a maximum of $500 per year, but that's in addition to the $2K limit on any other IRA. They may be made regardless of the beneficiary's income, but cannot be made once the beneficiary reaches 18. If distributions exceed the education expenses, the earnings must be included in gross income and excess withdrawals are subject to the 10% excise tax. Contributions begin to phase out at $150K for joint filers and $95K for single filers. The EIRA, if unused on or before age 30, may transfer to another qualifying family member as the new beneficiary for educational use. Such transfers must occur before the beneficiary reaches age 30. |
| Inherited IRAs | Inherited IRAs are acquired by the non-spousal beneficiary of a deceased IRA owner. Special rules apply to an inherited IRA. A tax deduction is not allowed for contributions to this IRA, a rollover to or from another IRA is not permitted, and the proceeds must be distributed and taxed within a specific period. If the owner died before beginning required minimum distributions, then the beneficiary must receive distribution of the inherited IRA by December 31 of the fifth year following the owner's death. Alternatively, the IRA may be paid as an annuity or in installments payable over a period not extending beyond the beneficiary's life expectancy. If the owner had begun to receive required minimum distributions while living, then the beneficiary must receive the remainder of the IRA at least as quickly as the owner would have under the schedule of distribution selected by that owner prior to death. |
