An IRA, or Individual Retirement Account, is a tax-advantaged way to save and invest for retirement. The money within IRA accounts grows tax deferred until withdrawal. This means that no capital gains taxes or taxes on interest accrued are due each year.

Eligibility for the type of IRA to which you can contribute depends on your age and income level. The Internal Revenue Service (IRS) issues the rules and regulations regarding IRAs.

IRA Options

Retirement plans may include one of several types of IRA accounts. Here we will explain the differences between retirement accounts so that we can help you select the retirement savings and investment account that’s right for you.

To discuss setting up an IRA, contact Dennis at dmccurdy@mccurdyinvestments.com.

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  • Traditional IRAA Traditional IRA offers two avenues by which you can retain more of what you earn. Annual contributions that you make to your traditional IRA may be tax deductible, depending in part on your adjusted growth income (AGI) and whether you participate in an employer-sponsored retirement plan.

    A Traditional IRA allows you to invest in stocks, bonds, mutual funds, certificates of deposit, ETFs and index funds, among other investments using pre-tax dollars. In a traditional IRA, contributions and growth are tax-deferred. That means you don’t pay taxes on it until you withdraw the money from the account after age 59 ½. When you retire, you will pay taxes on the amount of money you are withdrawing from your account at your ordinary tax rate. Additionally, with Traditional IRAs, the IRS mandates that you begin to take Required Minimum Distributions from your account beginning at age 70 ½.

    Taxpayers who do not qualify for the deduction can still make nondeductible contributions to an IRA, up to $5,000 per year. These nondeductible contributions must be documented fully, because no additional taxes should be paid on them.

    Rollover IRA: Transferring a retirement account into an IRA account is known as a rollover. A rollover enables your money from your employer-sponsored retirement plans, like a 401(k), to continue to grow tax deferred. That money can be rolled back into another employer-sponsored plan at a later date.

    A rollover IRA is the same as a traditional IRA, except that only funds rolled over from a previous retirement plan are held in the account. By segregating the monies in this way, a rollover IRA ensures that the funds can be rolled to a 401(k) plan should the opportunity ever arise.

    Roth IRA

    A Roth IRA is a special retirement account that you fund with post-tax income (you can’t deduct your contributions on your income taxes). Once you have done this, all future withdrawals that follow Roth IRA regulations (meaning withdraw from your contributions, not your earnings on those contributions) are tax-free and penalty-free. You can contribute to a Roth IRA at any age as long as you have earned income from a job. Roth IRAs do have income eligibility limits. We can help you determine your eligibility which is based on your income, age, and tax-filing status. Roth IRA contribution requirements are determined each tax year by the IRS.

    Roth IRAs make sense if you expect your tax rate to be higher during retirement than your current rate. Unlike Traditional IRAs, there are no required minimum distributions on Roth IRAs.

    SEP IRA

    Simplified Employee Pension Plans (SEP IRAs) help small business employees and self-employed individuals save for retirement and take advantage of tax benefits.

     

    SIMPLE IRA

    A SIMPLE IRA (Savings Investment Match Plan for Employees / Individual Retirement Account) plan provides small employers with a simplified method to contribute toward their employees’ and their own retirement savings. Employees may choose to make salary reduction contributions and the employer is required to make either matching or nonelective contributions. The SIMPLE IRA allows eligible employees to contribute part of their pretax compensation to the plan. This means the tax on the money is deferred until it is distributed (disbursement of assets). This contribution is called an elective-deferral (a contribution arrangement of an employer-sponsored retirement plan) or salary-reduction (a cash- or deferred-contribution to an employer-sponsored retirement plan whereby participants choose to set aside part of their pre-tax compensation as a contribution to the plan).

    Any employee who has received at least $5,000 in compensation during any two years preceding the current calendar year and is “reasonably expected” to receive at least $5,000 during the current calendar year is eligible to participate in a company’s SIMPLE IRA.