IRAs

IRA stands for either Individual Retirement Account or Individual Retirement Annuity. An IRA is an investing tool for retirement, allowing you to retire early or to live comfortably after you retire. There are 4 types of IRAs: Roth IRAs, SEP IRAs, SIMPLE IRAs, and Traditional IRAs.

Roth IRA

Roth IRAs allow non-deductible contributions to be made for up to a certain fixed amount each year. Qualified withdrawals are not taxed. To qualify for tax-free withdrawals, the account must be at least 5 years old and the account holder 59 ½ years old, the account holder must be disabled, or the account holder must be deceased (the beneficiary will collect).

SEP IRA

A Simplified Employee Pension (SEP) IRA is a retirement plan established by an employer. Individual participants' contributions are limited to a dollar amount or a percentage of pay.

Simple IRA

A Savings Incentive Match Plan for Employees (SIMPLE) IRA allows employees of small business to defer a part of their salary into the plan. Administrative costs are generally lower because these plans are simplified. Both employees and employers make contributions to IRAs. These plans are generally subject to a limitation on contributions (either a dollar amount or a percentage of pay).

Traditional IRA

Traditional IRAs allow the holder to defer salary (up to a specified amount) tax-free to the account. Withdrawals from the account are taxed. The account must begin distributing funds April 1st of the year after the year in which the account holder turns 70 ½. Money from a traditional IRA may be transferred into a Roth IRA, and taxes are paid when funds are transferred.