Understanding IRAs for You and Your Employees
IRA stands for Individual Retirement Account, which is a type of retirement account in the US that provides tax incentives and is helpful for providing financial security for their retirement. They can be set up with a bank or other financial institution, a life insurance company, mutual fund, or stockbroker.
IRAs for You
There are two types of IRAs: traditional IRA and Roth IRA.
Traditional IRAs are funded with pre-tax money while Roth IRAs are funded with after-tax dollars. Traditional IRAs have higher contribution limits than Roth IRAs, but they can withdraw Roth IRA contributions tax-free at any time, while they can only withdraw traditional IRA contributions tax-free when the owner turns 59½ years old without incurring a. Generally, earned income is required to contribute to an IRA.
Withdrawals for a traditional IRA generally must start at age 70 ½, unless your birthday is on or after July 1, then they can wait until age 72. Beneficiaries also have special distribution rules that will apply. Withdrawals for Roth IRAs are not required until after the death of the owner.
IRAs for Your Employees
An IRA also allows employees to save for retirement. The three types of IRAs for employees are SEP-IRA, Simple IRA, and Rollover IRA.
A SEP-IRA is an employer-sponsored plan that was designed to help businesses save for their employees. Employer makes contributions toward own retirement and their employees’ retirements. The employee owns and controls a SEP.
Simple IRAs are individual retirement accounts that offer the same tax advantages as a SEP-IRA. One major difference between the two is that an individual has to have earned income in order to contribute to a Simple IRA.. Employees and employers may contribute to traditional IRAs set up for employees and can work well for small employers as a start-up plan.
A Rollover IRA is any account from an employer-sponsored plan, an individual retirement arrangement, or another source where the funds were rolled over into this account by direct transfer or rollover contribution. Rollovers need to be deposited into a different IRA within 60 days.
