In order to save you time
and money we present the 11 types of IRA's currently available:
Retirement Account is either a traditional or
Roth IRA set up with a financial institution like a bank, broker, or
mutual fund in which contributions may be invested in many types of
securities such as stocks, bonds, money market, and CDs.
Retirement Annuity is either a traditional or
Roth IRA set up with a life insurance company through the purchase
of a special annuity contract.
and Employee Association Trust Account, or group IRA, is a
traditional IRA set up by employers, unions, and other employee
associations for employees or members.
Employee Pension (SEP-IRA) is a traditional IRA
set up by an employer for a firm's employees. An employer may
contribute up to $30,000 or 15% of an employee's compensation
annually to each employee's IRA.
Incentive Match Plan for Employees IRA (SIMPLE-IRA)
is a traditional IRA set up by a small employer for a firm's
employees. In 2001, an employee may contribute up to $6,500 per year
to these IRAs. This contribution limit will increase each year
through 2005, when it will reach $10,000. In 2006 and later years,
the allowable contribution will increase in $500 increments whenever
the cumulative effects of inflation indicate such a rise is needed.
The employer sponsoring the SIMPLE will also make a matching
contribution based on a percentage of the employee's pay. In 2001,
the combined employer-employee contribution to the participant's
account cannot exceed $13,000.
IRA is either a traditional or Roth IRA funded
by a married taxpayer in the name of his or her spouse who has less
than $2,000 in annual compensation. The couple must file a joint tax
return in the year of the contribution. The working
spouse may contribute up to $2,000 per year to the Spousal IRA and
up to $2,000 per year to his or her own IRA. A couple, then, may
contribute up to $4,000 per year provided neither IRA receives more
(Conduit) IRA is a traditional IRA set up by an
individual to receive a distribution from a qualified retirement
plan. Distributions transferred to a rollover IRA are not subject to
any contribution limits. Additionally, the distribution may be
eligible for subsequent transfer into a qualified retirement plan
available through a new employer. To retain this eligibility through
Dec. 31, 2001, the IRA must be composed solely of the original
distribution and earnings (i.e., no other contributions or rollovers
may be added to or mingled with the IRA), and the new employer's
plan must allow the rollover. After Jan. 1, 2002, commingling of
conduit IRA money with other IRA or qualified retirement plan money
is permitted, and the mixing of such monies will have no impact on
the ability to transfer those IRAs to a new employer's retirement
IRA is either a traditional or a Roth IRA
acquired by the non-spousal beneficiary of a deceased IRA owner.
Special rules apply to an inherited IRA. A tax deduction is not
allowed for contributions to this IRA, a rollover to or from another
IRA owned by the heir is not permitted, and the proceeds must be
distributed and taxed within a specific period as established by the
Internal Revenue Code. See "Designating
IRA Beneficiaries" for details on the various
distribution requirements of inherited IRAs.
IRA (EIRA) is an IRA established to provide
funds that will allow a beneficiary to attend a program of higher
education. There is no tax deduction allowed for the contribution,
but all deposits and earnings may be withdrawn free of tax and
penalties if used to pay for the costs of higher education.
Beginning in 2002, EIRA proceeds may also be used free of tax and
penalty to pay for the qualified expenses of a kindergarten through
12th grade education in public, private, and/or religious schools.
EIRA contributions are limited to a maximum of $500 per year, but
that's in addition to the $2K limit on any other IRA. Beginning in
2002, allowable EIRA contributions increase to $2,000 per year. For
full details on contribution limits and distributions, see "The
IRA is the term for a regular IRA available to
those under age 70 1/2 who have earned income (i.e., job
compensation). Earnings within the traditional IRA grow tax-deferred
until withdrawal. Withdrawals must begin, and will be taxed, when
the owner reaches age 70 1/2. If required distributions are not
taken at that age, a 50% penalty will be assessed on the amount not
taken. When made, contributions may or may not be tax
deductibledepending on the factors discussed previously in "All
About IRAs." Aworking spouse not covered by a
retirement plan through employment may make a tax-deductible
contribution of up to $2,000 annually to an IRA despite the other
spouse's coverage under an employer-provided retirement plan. When
the couple's AGI reaches $150,000, deductibility for such
contributions begins to decline, and it reaches zero at a joint AGI
IRA is an IRA in which:
Contributions to the
account are not deductible.
distributions (i.e., withdrawals) from the account are not taxable.
Earnings on the
account are taxable and subject to an early withdrawal penalty only
when a withdrawal is not a "qualified" distribution.
distribution from a Roth IRA is a withdrawal that meets one or more of
Made after the
taxpayer attains age 59 1/2
Made to a beneficiary
after the taxpayer's death
Made because the
taxpayer is disabled
Made by a first-time
homebuyer to acquire a principal residence
No withdrawal except those
attributable to previously taxed contributions will be a qualified
distribution unless it is made after the five-tax-year period beginning
with the tax-year in which the taxpayer first contributed to a Roth IRA.
Annual contributions to a
Roth IRA are subject to the contribution limits shown previously in
About IRAs" as reduced by any contribution made to a
traditional IRA. Contributions to a Roth IRA may be made even after the
owner reaches age 70 1/2. The annual contribution limit is phased out as
AGI increases from $150,000 to $160,000 (married filing jointly) or
$95,000 to $110,000 (single filer).
Amounts in traditional
IRAs may be transferred to Roth IRAs provided the taxpayer's AGI
(married or single) for the transfer year is $100,000 or less.
Transferred amounts must be included in that year's income, but the
money transferred will be exempt from the 10% excise tax for a
withdrawal prior to age 59 1/2. No withdrawal allocable to earnings on
the transferred amounts is considered to be a qualified distribution
unless it is made more than five tax-years after the transfer.
Further details on IRA
provisions may be found in IRS Publication 590, Individual Retirement
Arrangements. This publication may be obtained at no cost by calling
1-800-TAX-FORM or downloading it online.
The information above was
provided courtesy of the The Motley Fool website at http://www.fool.com.
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