Different Types of IRAs

IRA, or Individual Retirement Account is an example of an individual retirement plan account that can be used to benefit from tax advantages for one’s retirement savings. There are a number of IRA’s that individuals can choose from. The type of Ira would ultimately depend on what each individual requires and looks for to give the best benefits.

There is the traditional IRA where the contributions are often tax deductible. This means that money contributed to this type of retirement account is deposited before tax is computed on income. This allows the individual with immediate tax benefits.

An advantage of having a traditional IRA is that it provides increased incentives if the individual finds himself in a lower tax bracket at retirement than during his working years. One of the disadvantages of this retirement account is that there are certain eligibility requirements in order to enjoy tax deductibility.

Another disadvantage is that withdrawals from the account are subject to income tax which includes its gross income. This type of Ira would not favor those who prefer buying and holding investments as well as those that earns dividends.

Then there is the SIMPLE IRA which is a type of retirement plan that is provided by the employer. SIMPLE stands for "Savings Incentive Match Plan for Employees". It is somewhat similar to a 401(k) retirement account in that it allows both employer and employee contributions.

The advantage of the SIMPLE IRA is that there are lower contribution limits and simpler administration costs. A disadvantage of this type of retirement account is that it cannot be easily be rolled over to a traditional IRA without a waiting period, which is two years after an employees’ initial participation on the said plan.

Another IRA option that individuals can check out is the Roth IRA. This type of IRA account allows holders to invest their contributions on securities such as common stocks or mutual funds. Just like other types of IRA’s, there are specific eligibility requirements involved before one may be able to get a Roth IRA.

The main advantage of this type of IRA is its tax structure. The contributions on it are made only after earned income has already been taxed, making it not tax deductible. But what makes it attractive is that the withdrawals are that the holder of a Roth IRA may be able to withdraw contributions as well as earnings free from federal income tax. The way the Roth IRA is handled and maintained can be quite different from that of the traditional IRA account.

These are just a few of other retirement accounts that employees may be able to obtain and place their retirement savings on. It is important to take a closer look at each one and understand how they may help you I your quest of preparing for your eventual retirement. It might take some bit of time to study and learn. But it would be all worth the effort when you want to make sure of putting your retirement savings to good use.

 

Posted by Ardent Editor on Oct 17 2007 in IRAs

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