The Different Types Of Individual Retirement Account (IRA)

Individual Retirement Account (IRA) Defined

An Individual Retirement Account (IRA) is a type of retirement plan that gives individuals tax

advantages to make them earn for their retirement plans and savings.

The Different Retirement Accounts

Individual Retirement Account (IRA)

For every savings you contribute to the account, you get a deduction on tax. This retirement

account allows you to contribute a particular amount every year and invest your contributions

without tax. There are no fees on taxes on your annual investment gain. When you decide to

withdraw the money, the distribution from the Individual Retirement Account (IRA) will be

included in your taxable income.

Because IRA is an investment account, you can invest in bonds, stocks, ETFs, mutual funds, and

any other type of investments. If, however, you withdraw the cash before retirement-let’s say

59 and a half- you are most probably subject to paying a ten (10) percent penalty fee.

Roth Individual Retirement Account or Roth IRA

Roth IRA and the traditional IRA are somewhat alike. However, contributions are not subject to

tax deductions and qualified distributions are free of tax. Roth IRA contributions are completed

after tax. However, any amount of money produced within the Roth is not taxed again. You

may also withdraw your contributions before your retirement without facing penalties. Placing

money in a Roth IRA is a good venue to invest additional cash, and at the same time, having a

good tax break in the future.

Non-deductible Traditional Individual Retirement Accounts

Similar to a traditional IRA, a non deductible IRA is a savings plan that is tax-deferred. The

contributions, however, are not tax-deductible. Part of your distribution becomes a tax-free

return of the original contribution that is non-deductible once you start with your

contributions. The rest is taxed as ordinary income. When people are covered by retirement

plans by their employees, they normally go for a non-deductible IRA. The traditional IRA and

non-deductible IRA only differ in how they treat the original contribution.

Roth 401(k)

This type of account is offered through the employers. Your contributions are taken from your

after-tax salary. Not many employers offer this because it is new.

401(k) Account

This is a workplace retirement account. This is offered as a benefit to the employees. This type

of account makes you supply a part of your pay check before tax in an investment account that

is tax-deferred. When you contribute money before it is taxed, it results to lowering the

amount of income that your taxes are based on. So, if you have $80,000 and you contribute

$10,000, your tax is based on a $70,000 income. If, however, you withdraw your funds before

your age of retirement, you are going to pay a ten (10) percent penalty and be subject to

income taxes.

Your retirement may be not soon enough, but you need to improve your financial outlook and

invest in IRAs as soon as now. You can start investing even if your retirement age is still 30 years

from now.

Just imagine, if you invest an amount of money every year, plus the percentage it increases

annually, multiplied to 30 years- you do the math- that would be a lot of money.

Having retirement plans is good financial planning. You have to earn and save now while you

still can.