Types Of IRA Plans
Saving for retirement is extremely important and understanding the types of IRA plans available may be helpful in planning for your future. There are two individual retirement account plans that may be set up by an individual and three plans that may be offered by your employer.
- Traditional IRA This type of individual retirement account can be set up at most financial institutions, insurance companies or brokerage firms. There is a cap on the amount of money that can be contributed to this account each year. The money is usually tax deductible during the year it was contributed and the individual will not pay taxes on the money until it is withdrawn.
- Roth IRA The Roth is similar to the traditional IRA in regards to where it can be set up and the limitations on annual contributions. The main difference is that the money that is being contributed to the retirement account has already been taxed. This allows you to earn interest and withdraw the money during retirement without paying taxes on it.
- SARSEP This is also known as the Salary Reduction Simplified Employee Pension plan. These individual retirement account plans were set up prior to 1997 by employers. The employer makes contributions to their employees' IRAs and must stay within the dollar limits of the plan.
- SEP A Simplified Employee Pension plan is used by employers to make direct contributions to their employees IRA accounts. Self employed individuals working as a sole proprietor may set up this type of IRA for their own retirement savings plan.
- SIMPLE IRA The Savings Incentive Match Plan for Employees allows employers of small businesses to use a simple method to contribute money to their employees IRAs. The employer may match the employee’s contributions or the employee may choose a salary reduction contribution to his individual retirement account. There are limits to the amount of salary reductions that are allowed under the plan and a limit to the amount of contributions that an employee may make to the plan.