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Types of IRA's Overview
Home » Retirement » Types of IRAs » Types of IRA's OverviewThe abbreviation IRA stands for Individual Retirement Accounts. In 1974, Congress established these accounts to assist people in saving for their retirement. This investment is available through a variety of financial institutes including a savings account at a bank, certificates of deposit, mutual funds and stocks. When IRA’s were first established, only those people who did not have access to a retirement plan at work could participate. In 1981, Congress expanded IRA capabilities to include anyone regardless of other retirement plans. By utilizing this savings for retirement, you can set aside a specified amount of money each year. This retirement savings plan also has tax advantages. The traditional IRA provisions include the amount of money you have saved and the interest that is earned is tax deferred until the time of withdrawal. The Roth IRA allows you to enjoy your money tax free at the time of retirement. You may begin withdrawals at the age of 59½. If you use the money before this age, a 10% penalty will be imposed. You must withdraw the money at age 70½. You can withdraw it in a lump sum or in periodic annual payments based on life expectancy calculations. By law, you must stop payments to your IRA at age 70½. Pre-planning your IRA years before retirement will allow you a bigger pay-off when you leave the work force. IRA’s may be set up at a bank, through a mutual fund or a brokerage firm. Your contributions qualify as a deduction against your earned income each year when you complete your taxes. IRA’s are only payroll deducted under certain circumstances. If you don’t participate in a retirement plan at your job and you earn less than 25,000 a year, you may contribute the most to an IRA. If your employer does not provide a pension plan, you may contribute up to $2,000 a year in an IRA. Married couples may contribute $4,000 to IRA’s each year. That amount may only be contributed if there is no employer sponsored retirement plan.
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