What is an IRA?

An IRA is an individual retirement account. An Ira is a personal savings plan that provides income tax advantages to individuals saving money for retirement purposes

Who is eligible to open an IRA

Any individual can open and make contributions to a traditional IRA, as long as you, or your spouse (if you file a joint return), received taxable earned compensation during the year and you were not 70 ½ years old by the end of the year

What is an IRA Rollover or Conversion? When do I need to do this?

A rollover is when you move a qualified plan or another IRA into a rollover IRA. You can only do one (1) rollover every twelve months. You can do as many trustee- to-trustee transfers as you want per year. A trustee-to trustee transfer is where your current plan sends the money or assets to another rollover plan. You should have a competent advisor help you with this type of transaction.

How does an IRA work?

You invest money in an IRA, up to the amount allowable under the tax law. These investments are termed “contributions.” In many instances an income tax deduction is available for the tax year for which the funds are contributed. The contributions, as well as the earnings and gains from these contributions, accumulate tax-free until you withdraw the money from the account. You therefore enjoy the ability to generate additional earnings, unreduced by taxes on these earnings, each year the funds remain within the IRA.

What are the different types of  IRA’s ?


Traditional IRA 

You can contribute up to $2,000 per year into an IRA. The amount of this contribution that is deductible on your income tax return depends on your adjusted gross income (AGI) and whether you are covered under an employer sponsored qualified retirement plan. Thus, depending on your filing status (Single, Joint, etc), and your AGI, your contributions may range from fully deductible to totally non-deductible. So even though you are eligible to contribute to your IRA, you may be in a position where none of these contributions are in fact deductible.

Education IRA

You can put away up to $500 pear year into an education IRA,  the money grows tax- free and has preferential tax treatment upon distribution to the beneficiary who uses it for authorized education expenses. These plans are not very common in that they are very restrictive on who can make contributions to them, the amount of total contributions allowable each year, and the limitations on what exact education expenses qualify. Your financial planner should be able to assist you in evaluating what savings plan you should undertake to prepare for higher education costs, as well as in reviewing many of the tax-sheltered savings plans now sponsored by the various states, even for benefits of non-state residents.

SEP IRA- Simplified Employee Pension

This is an employer established and funded Simplified IRA, where the employer can put up to 15% of your compensation into a special IRA account. Sole Proprietors may establish these plans for their own benefit. They are sometimes used instead of Keogh of retirement plans because they have fewer administrative and tax filing requirements.

Simple IRA

Employer sponsored and administered retirement plan. The employer to establish and fund a retirement plan for the benefit of him/ herself and his/ her employees, but it also permits employees to contribute up to 100%, but no more than $6,500 per year, into an IRA. Separate rules relative to required employer contributions and premature distributions apply.

Roth IRA

Contributions are NOT deductible when the funds are contributed, but the Roth IRA earnings accumulate tax-free and remain tax- free upon distribution. To be eligible to contribute, your Adjusted Gross Income must be under $95,000 for singles and %150,000 for married couples, as of December 2000. You cannot withdraw your funds within the first 5 years after the establishment of the Roth without a penalty. Given that this 5- year testing period can successfully be addressed by proper tax planning, the establishment and at least partial funding of a Roth IRA account should be on the discussion list of the financial advisor of every taxpayer who qualifies to open such a plan.

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