An Individual Retirement Account (IRA) is a tax advantaged retirement savings plan created by the US government to encourage individuals and small businesses to save for their retirement. Some investments selected inside these accounts may include mutual funds, stocks, bonds, annuities and CDs.
Individual retirement accounts (IRAs) can be established for individuals and for small businesses. The IRAs setup by individual investors are the Traditional IRA, Roth IRA and Rollover IRA. Small businesses and self employed individuals can setup a Simple IRA or a SEP IRA.
IRAs for Individual Investors
Traditional IRA
A Traditional IRA is a personal savings account that allows individuals to contribute pre-tax income into an Individual Retirement Account. Traditional IRA contribution limits for 2021 are $6,000 annually and $7,000 if age 50 or older. Contributions to a Traditional IRA may be tax deductible (depending on the taxpayer’s income, tax filing status) and investment interest grows tax deferred. With a Traditional IRA you do not pay taxes on the dividends and investment earnings until after you withdraw the assets. Withdrawals from a Traditional IRA are taxed as income after age 59 ½. Withdrawals made prior to age 59 ½ may incur an additional income a penalty of 10%..
Learn more about the Traditional IRA.
Roth IRA
A Roth IRA is a personal savings account that allows individuals to make after-tax contributions into an Individual Retirement Account. Roth IRA contribution limits for 2021 are $6,000 annually and $7,000 if age 50 or older. Contributions to a Roth IRA are not tax deductible and investment interest grows tax free. Withdrawals from a Roth IRA are tax free after age 59 ½.
Learn more about the Roth IRA.
Rollover IRA
A Rollover IRA is a tax free transfer of funds from an ex-employer’s retirement plan such as a 401k, 403b, 457 or Thrift Savings Plan to an IRA. When you change jobs you are entitled to transfer or “rollover” your previous employer’s retirement plan to a Rollover IRA.
Learn more about the Rollover IRA.
IRAs for the Self Employed and Small Businesses
SIMPLE IRA
The SIMPLE IRA is an employer sponsored retirement plan available to small businesses with less than 100 employees including sole proprietorships, partnerships, S corporations and C corporations. The maximum employee Simple IRA contribution limit in 2021 is $13,500 and $16,500 for those age 50 or older.
Learn more about the SIMPLE IRA.
SEP IRA
The SEP IRA is a retirement plan that is ideal for small business owners and self employed individuals. The SEP IRA contribution limit in 2021 is $58,000.
Learn more about the SEP IRA.
NOTE: In addition to these IRA accounts self employed individuals and small business owners can select either a Solo 401k or Defined Benefit Plan.