Individual Retirement Plans

One of the most popular personal, or individual, retirement plans is the IRA. There are several types of IRAs.

The traditional IRA permits tax-deductible individual contributions, with certain annual limits, into a savings or investment account. Withdrawals may begin at age 59 1/2 and must begin after the individual turns 70 1/2. Earnings on the contributions are taxed when the money is distributed.

The Roth IRA, unlike the traditional IRA, uses after-tax dollars and no tax is paid when it is withdrawn. Like the traditional IRA there are annual contribution limits and rules regarding distributions.

For 2013 and 2014, the maximum individual contribution for traditional and Roth IRA is the smaller of $5,500 ($6,500 for a taxpayer 50 or older), or his or her taxable compensation for the year.

The Rollover IRA permits an employee to convert some types of qualified retirement plans into an IRA that the individual controls and manages. No additional contributions can be made to the Rollover IRA, but may be made into another qualified retirement account. Tax and distribution rules apply.

The SEP (or Simplified Employee Pension Plan) is for the self-employed, but employers may also use these for their employees (different rules apply to each). These plans offer higher contribution limits than a traditional or Roth IRA. A SEP IRA receives the same tax advantages as an IRA or 401(k).

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