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Individual Retirement Accounts!
Individual Retirement Accounts (IRAs)
What is an IRA?
IRA stands for "Individual Retirement Account," and it is a tax-advantaged way for you to save money for your retirement.
There are four basic types of IRAs, and each has different rules. IRAs offer tax-deferred compounding once your money is invested in the account, but the four types differ in terms of how they work and how much money you can put into them annually.
You may contribute up to $5,500 ($6,500 if you're age 50 or older) as long as you and/or your spouse (if filing jointly) have sufficient taxable income. You may get a tax deduction when you contribute, but your money is eventually taxed as ordinary income when you take it out. If you take it out before it is allowed (age 59-1/2), you can also incur a penalty, in addition to the tax due. You can't contribute past age 70-1/2. At age 70-1/2 you have to start taking "required minimum distributions."
You may contribute up to $5,500 ($6,500 if you're age 50 or older) as long as you and/or your spouse have sufficient taxable income, but there are income limits above which you can't contribute. You do not get a tax deduction when you contribute to a Roth IRA, but withdrawals can be taken out completely free from income taxes, as long as you don't withdraw from the earnings on the account before the age of 59-1/2. You can contribute at any age, and you are not required to take a minimum distribution from your own Roth IRA.
This type of IRA is funded by the employer on the employee's behalf. The employer can invest up to 25% of the employee's compensation, up to a limit of $52,000. The employee is immediately vested in the money the employer contributes, and the company must contribute equally for all eligible employees. When it comes to withdrawals, the SEP IRA is treated like a traditional IRA.
The SIMPLE IRA is funded by both the employee and the employer. It is only available to smaller companies. Employees can contribute up to $12,000 into your SIMPLE IRA ($14,500 if you're age 50 or older). The employer can either choose to match your contribution dollar for dollar up to 3% of your compensation (with no dollar limit) or provide a nonelective contribution of 2% on up to $260,000 of the employee's pay. When it comes to withdrawals, a SIMPLE IRA is also treated like a traditional IRA.
*Other conditions may apply, please consult your tax advisor.