Traditional IRA
An IRA (Individual Retirement Account) is another instrument by which people save for retirement. It is different that a 401K or other employee sponsored account because this account it setup by an individual person.
Much like a 401K, the big benefit of an IRA is that the account holder can deduct his contribution for the year from his income, thus reducing his or her taxable income. Naturally the proceeds are available to be taxed after they are withdrawn.
You can usually setup an IRA to purchase most types of securities and some non security financial instruments. Some assets cannot be held in an IRA such as collectibles (e.g. art, baseball cards, and rare coins) and life insurance. Probably the most common IRA is one that invests in mutual funds.
Distribution:
Although funds can be distributed from an IRA at any time, there are limited circumstances when money can be distributed or withdrawn from the account without penalties. Money can usually be withdrawn penalty free as taxable income from an IRA once the account owner reaches age 59 and a half. Also, non-Roth account owners must begin taking distributions of at least the calculated minimum amounts by April 1st of the year after reaching age 70 and a half.
Funding:
- The maximum for an IRA contribution in years 2006 and 2007 is 100% of earned income or $4,000, whichever is less, for an individual under the age of 50.
- Individuals aged 50 and older can contribute up to 100% of earned income or $5,000 whichever is less. For 2008 and 2009, the limits are $5,000 and $6,000 respectively. This limit is for Roth IRAs, traditional IRAs, or some combination of the two. You cannot put more than $5,000 into your Roth and traditional IRA combined ($6,000 for individuals aged 50 or more).
An IRA (Individual Retirement Account) is another instrument by which people save for retirement. It is different that a 401K or other employee sponsored account because this account it setup by an individual person.
Much like a 401K, the big benefit of an IRA is that the account holder can deduct his contribution for the year from his income, thus reducing his or her taxable income. Naturally the proceeds are available to be taxed after they are withdrawn.
You can usually setup an IRA to purchase most types of securities and some non security financial instruments. Some assets cannot be held in an IRA such as collectibles (e.g. art, baseball cards, and rare coins) and life insurance. Probably the most common IRA is one that invests in mutual funds.
Distribution:
Although funds can be distributed from an IRA at any time, there are limited circumstances when money can be distributed or withdrawn from the account without penalties. Money can usually be withdrawn penalty free as taxable income from an IRA once the account owner reaches age 59 and a half. Also, non-Roth account owners must begin taking distributions of at least the calculated minimum amounts by April 1st of the year after reaching age 70 and a half.
Funding:
- The maximum for an IRA contribution in years 2006 and 2007 is 100% of earned income or $4,000, whichever is less, for an individual under the age of 50.
- Individuals aged 50 and older can contribute up to 100% of earned income or $5,000 whichever is less. For 2008 and 2009, the limits are $5,000 and $6,000 respectively. This limit is for Roth IRAs, traditional IRAs, or some combination of the two. You cannot put more than $5,000 into your Roth and traditional IRA combined ($6,000 for individuals aged 50 or more).