IRA Retirement Accounts Overview
With retirement fast approaching, many Americans today are taking a closer look at their retirement savings. Those without savings are looking for ways to plan for the future, while those who already have savings want to know more about their money. There are many different options when it comes to retirement savings; however, individual retirement accounts (IRA) are perhaps the most popular choice. Today, millions of Americans have some type of IRA account. In this article, we will explore the different types of IRAs, as well as general information regarding their history and how they work.
History of individual retirement accounts
IRA accounts were first created with the passage of the Employee Retirement Income Security Act of 1974. Under the IRA system, regular employees were allowed to contribute up to $1,500 per year to their retirement savings. What is special to the IRA plan is the fact that these contributions can be deducted from taxable income. At first, IRAs were only available to individuals whose employers did not offer private retirement plans at the time. This was changed, however, by the Economic Recovery Tax Act, in 1981. Currently, any taxpayer under the age of 70 may start and contribute to an IRA plan.
Types of IRA plans
The original IRA plan introduced in 1974. Under the traditional IRA, retirement contributions are not counted in taxable income. Interest and other earnings on these contributions are also tax deferred. Upon withdrawal, the money dispersed from a traditional IRA account is treated as ordinary income for tax purposes.
Under the Roth IRA plan, contributions are made with after-tax dollars. Earnings from Roth IRA investments are tax-free. Withdrawals from a Roth IRA account are also not taxed.
With a SEP IRA, an individual’s employer may make contributions to an IRA account in the employee’s name, rather than to a pension fund controlled by the company.
A simple IRA allows for contributions from both employers and employees, but with much lower contribution limits. The SIMPLE IRA also has fewer options with regard to how the money in the account can be managed.
A self-directed IRA allows for the owner of the account to make his or her own investments on behalf of the savings plan.
In this article, we have explored the options regarding the IRA retirement accounts.