IRA (Individual Retirement Account) plans are among the most preferred options of ensuring a steady income after your retire. An increasing number of senior people and retirees in the US are opting for these plans to insure their future against any uncertainty.
With increasing catch-up contribution and limits, it has become much easier for the investors to save even more after retirement and as the earnings on IRA account are tax-deferred thus money increases more quickly than in a non-retirement account.
Various kinds of IRAs are : - -
Traditional IRA
- Roth IRA
- SARSEP
- SIMPLE IRA
Traditional IRA
A Traditional IRA plan is a personal savings plan that gives you tax advantages for your retirement savings. For tax purposes, your contributions to a traditional IRA may be deductible from your current income, either in whole or in part. Also, the earnings on the amounts in your IRA are not taxed until they are distributed. The part of the contributions that is tax deductible ,until distributed does not get taxed . You can have a traditional IRA at financial institutions including banks, insurance companies and brokerage firms.
Roth IRA
A Roth IRA is also a personal savings plan but, quite opposite to a traditional IRA. For example, contributions made to a Roth IRA account are not tax deductible while contributions to a traditional IRA do get deductions. While distributions (including earnings) from a traditional IRA may be included in income, the distributions (including earnings) from a Roth IRA are not included in income.
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SARSEP (Salary Reduction Simplified Employee Pension Plan)
In a SARSEP, both employers and employees contribute to SARSEPs, making them similar to 401ks. Many consider these employer contributions the real attraction of the SARSEP account. This is a simplified plan and the administrative costs are lower than the other more complex plans.
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SEP ( Simplified Employee Pension plan)
SEP enables employers to make contributions toward the employees' retirement and
if self-employed, to their own retirement. Contributions are made directly to
your IRA set up for you (a SEP-IRA). It is best suited for small businesses with
a small part-time staff, which do not have any other type of retirement plan,
and are completely funding the company pension plan.
SIMPLE IRA plan
A SIMPLE IRA plan is a Savings Incentive Match Plan for Employees. It allows you as an employee to defer a part of your salary into the plan for retirement. A SIMPLE IRA Plan is funded both by employer and employee contributions. Under a this plan, you can choose to make salary reduction contributions and your employer makes matching or non-elective contributions. All contributions are made directly to your IRA. This plan is ideal for small businesses.
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