9 Types of IRAs
- An Individual Retirement Account is an IRA set up with
a financial institution like a bank, broker, or mutual fund in which
contributions may be invested
in many types of securities such as stocks, bonds, money market, CDs, etc.
- An Individual Retirement Annuity is an IRA set up with a life insurance
company through the purchase of a special annuity contract.
- An Employer and Employee Association Trust Account, or Group IRA,
is an IRA set up by employers, unions, and other employee associations
- A Simplified Employee Pension (SEP-IRA) is an IRA set up by
an employer for a firm's employees. An employer may contribute up to
$40,000 or 25% of
an employee's compensation annually to each employee's IRA. (See SIMPLE).
- A Savings Incentive Match Plan for Employees IRA (SIMPLE-IRA) is an
IRA set up by a small employer for a firm's employees. Employees may contribute
up to $8,000 per year to these IRAs and will receive some level of a
percentage of pay from their employer. Between the employer and the employee,
up to $12,000 may be contributed annually to the participant's account.
- A Spousal IRA is an IRA funded by a married taxpayer in the name
of his or her spouse. The couple must file a joint tax return for the
year of contribution.
The working spouse may contribute up to $3,000 per year to the Spousal
IRA and up to $3,000 per year to his or her own IRA. A couple, then, may
up to $6,000 per year provided neither IRA receives more than $3,000.
Rollover (Conduit) IRA is an IRA set up by an individual to receive a
distribution from a qualified retirement plan. Distributions transferred
to a rollover IRA are not subject to any contribution limits. Additionally,
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
the IRA), and the new employer's plan must permit the acceptance of rollover
- An Inherited IRA is an IRA 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
IRA is not permitted, and the proceeds must be distributed and taxed
within a specific period as established by the Internal Revenue Code. If
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
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
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.
- A Roth
IRA is an IRA authorized on or after January 1, 1998, in which:
to the account are not deductible.
b. "Qualified" distributions
(i.e., withdrawals) from the account are not taxable; and
c. Earnings on
the account are taxable only when a withdrawal is not a "qualified" distribution.
A "qualified" distribution
from a Roth IRA is a withdrawal that meets one or more of the following:
- Made after the taxpayer attains age 59 1/2.
- Made to a beneficiary
after the taxpayer's death.
- Made because the taxpayer is disabled.
- Made by a first-time home
buyer to acquire a principal residence.
No withdrawal except
those attributable to previously taxed contributions will be a qualified
distribution unless it is
the five-taxable-year period beginning with the taxable year
in which the
contributed to a Roth IRA.
Annual contributions to a Roth IRA are
limited to $3,000 minus the taxpayer's traditional IRA contributions.
Roth IRA may be made
even after the owner reaches age 70 1/2. The $3,000 limit
is phased out as AGI
increases from $150,000 to $160,000 (married filing jointly)
or $95,000 to $110,000 (single filer).
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