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IRA:Individual Retirement Account
       
 
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IRA:Individual Retirement Account

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IRA:Individual Retirement Account
A retirement account with Tax advantages. Individuals may contribute money annually to an IRA based on how much they've earned (such as wages) or up to IRS-established limits, some of which are age- and income related. Contribution and withdrawal rules also are based on the type of IRA: traditional (either deductible or non-deductible) or Roth.
    
An investing tool used by individuals to earn and earmark funds for retirement savings. There are several types of IRAs: Traditional IRAs, Roth IRAs, SIMPLE IRAs and SEP IRAs.
    
Traditional and Roth IRAs are established by individual taxpayers, who are allowed to contribute 100% of compensation (self-employment income for sole proprietors and partners) up to a set maximum dollar amount. Contributions to the Traditional IRA may be Tax deductible depending on the taxpayer's income, Tax filing status and coverage by an employer-sponsored retirement plan. Roth IRA contributions are not Tax-deductible.
    
With the exception of Roth IRAs, where eligible distributions are Tax-free, eventual withdrawal from an IRA is taxed as income; including the capital gains. Because income is likely to be lower after retirement, the Tax rate may be lower. Combined with potential Tax savings at the time of contribution, IRAs can prove to be very valuable Tax management tools for individuals. Also, depending on income, an individual may be able to fit into a lower Tax bracket with Tax-deductible contributions during his or her working years while still enjoying a Low Tax bracket during retirement.
Posted by  Financial Research Associates, LLC
 
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