Individual Retirement Account (IRA)
Individual Retirement Accounts are an important investing tool
An Individual Retirement Account (also known as an "individual retirement arrangement") is an investing tool in the United States of America that is used to build up a retirement savings fund. An IRA retirement plan helps provide tax advantages for an individual's retirement savings. There are five main types of Individual Retirement Accounts: Roth IRAs, Traditional IRAs, SIMPLE IRAs, SEP IRAs and Self-Directed IRAs.
Roth & Traditional Individual Retirement Accounts
Roth IRAs and Traditional IRAs are generated by individual taxpayers. These taxpayers are able to provide 100% of compensation as far as an established maximum dollar figure. It is possible that contributions to a Traditional IRA can be tax deductible, but that is dependent on the taxpayer's earnings, filing status and coverage in an employer-sponsored retirement plan. Roth IRAs may never be tax-deductible in any circumstance.
SEP & SIMPLE Individual Retirement Accounts
SEP (Simplified Employee Plan) & SIMPLE (Savings Incentive Match Plan for Employees) IRAs are both retirement plans that are employer-established. Both types of Individual Retirement Accounts allow employer and employee contributions alike. In this way, these types of retirement plans are similar to the 401(k) pension plan but with much smaller contribution limits and far less paper work and administration. In turn, SEP & SIMPLE IRAs are much less costly than the 401(k) plan.
Self-Directed Individual Retirement Accounts
A Self-Directed IRA makes it mandatory that the owner of the IRA account makes all of the investment decisions on behalf of the retirement plan. By IRS standards, a qualified trustee or custodian are the only ones able to hold the assets of the IRA on behalf of its owner.
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