Five Types Of IRAs
There are many different kinds of IRAs and Self Directed IRAs out there. Here is an explanation of the main five to help you understand what they are there for. There are traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, and Education IRAs.
A traditional IRA has the most restrictions of all the IRAs. However, it is sometimes the only option because of the income restriction placed on the Roth IRA. Even the traditional IRA has great benefits with tax deductions, tax deferred income, and investments.
Money in a traditional IRA is tax deferred until it is withdrawn. You can also receive a tax deduction on any of the contributions made. It is still a great option for investing as your income will also be tax deferred. You can withdraw money from your account at the age of 59 or earlier if you want to pay a 10% fee. At the age of 70 you will be required to make withdraws.
A Roth IRA is limited to those making under $95,000 a year or for couples, under $150,000. All the money in the account is tax free even when it's withdrawn. There are no fees for taking your money out no matter the age. You can leave your money in the account or take it out whenever you want.
The Education IRA is great for parents who want to save money for their children's education. It can be set up by a parent or guardian for a child under the age of 18. The money will also be tax free for its life but can only be used for educational purposes.
There are two types of IRAs that employers set up for their employees. The most popular is the SEP IRA, or Simplified Employee Pension IRA. This IRA has the same rules as the traditional IRA except for the yearly contribution limit. The SEP IRA is allowed to have up to 15% of the employees income put into it.
A SIMPLE IRA is another IRA set up by the employer. SIMPLE stands for Savings Incentive Match PLan for Employees. Both employer and employee can contribute to this IRA but the yearly limits are much lower than other IRAs. Consequently, this type of IRA is usually used by small companies because of its' low cost.
With whatever IRA you have you can usually set it up to be a Self Directed IRA. This means you can invest the money on your own. This is a great option for those that already know how to invest. If you are unsure or don't have the time to make this investment then you can simply choose not to have a Self Directed IRA.
Article Source: FxTradingStock.com
About the Author
NAFEP (The National Association of Financial and Estate Planning) wants to put you in control of your finances with the following: self directed IRA and self directed 401k products, administrative and custodial services.
by: John Coktostin
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Word Count: 456
Date: Sat, 10 Jul 2010
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