Individual retirement accounts can be important tools in retirement planning
It is never too early to begin planning for retirement. Individual retirement accounts provide tax incentives for people to make investments that can provide financial security when they retire. These accounts can be with a bank or other financial institution, a life insurance company, mutual fund or stockbroker.
A traditional IRA is the most common type of individual retirement account. IRAs let earnings grow tax deferred. Individuals pay taxes on investment gains only when they make withdrawals. Depositors may be able to claim a deduction on their individual federal income tax return for the amount they contributed to an IRA.
What to consider before investing in a traditional IRA
A traditional IRA is a tax-advantaged personal savings plan where contributions may be tax deductible.
Generally, the money in a traditional IRA isn’t taxed until it’s withdrawn.
Roth IRAs don’t require withdrawals until after the death of the owner.
Other types of IRAs
Simplified Employee Pension – A SEP IRA is set up by an employer. The employer makes contributions directly to an IRA set up for each employee.
Savings Incentive Match Plan for Employees – A SIMPLE IRA allows the employer and employees to contribute to an IRA set up for each employee. It is suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.
Payroll Deduction IRA – Employees set up a traditional or a Roth IRA with a financial institution and authorize a payroll deduction agreement with their employer.
Rollover IRA – The IRA owner receives a payment from their retirement plan and deposits it into an IRA within 60 days.
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