Planning Your Retirement With An IRA
There are a lot of ways to plan for retirement. One of the most common, however, is to invest in an Individual Retirement Arrangement, or an IRA. These kinds of accounts provide tax incentives for making investments that can help provide financial security later on in life. IRAs can be held by a bank, another financial institution, or even a life insurance company, stockbroker, or mutual fund. Read on to learn more about the tax implications of opening an IRA account in Florida.
Types of IRA Plans
There are actually a number of different types of IRAs that taxpayers can invest in, each of which comes with its own advantages and limitations. The most common include:
- Traditional IRAs, which are basically tax-advantaged personal savings plans with deductible contributions;
- Roth IRAs, where contributions aren’t deductible, but qualified distributions could be tax free;
- Payroll Deduction IRAs, which are a type of plan set up by an employer where an employee makes a contribution via payroll deduction;
- Simplified Employee Pension (SEP) plans, where an employer makes contributions directly to the employee’s IRA;
- SIMPLE IRAs, which are a type of Savings Incentive Match Plan where employees can choose to make salary reduction contributions that are then matched by their employer and are usually used by small employers that don’t have other retirement plans;
- Salary Reduction Simplified Employee Pension Plans, which are a type of SEP created before 1997 that involve a salary reduction arrangement; and
- Rollover IRAs, which are a type of plan that allows the owner to receive a payment from the plan and deposit it into a different IRA within two months.
To learn more about the tax repercussions of investing in one of these types of IRAs, reach out to our legal team today.
What to know About Traditional IRAs
Traditional IRAs are one of the most popular types of investment plans used by taxpayers. In most cases, the money contained in traditional IRAs isn’t taxed until it is withdrawn. There are, however, annual limits to contributions, which will depend on the age of the taxpayer. Furthermore, a taxpayer could face a ten percent penalty if he or she withdraws funds from an IRA before the age of 59 and one-half years old (unless they qualify for an exception). In most cases, IRA account holders must start taking withdrawal when they turn 72 years old. There are also special distribution rules for IRA beneficiaries.
Investing in a Roth IRA
Roth IRAs, which are another common type of IRA plan, are similar to traditional IRAs in a lot of ways. There are, however, a few differences. Taxpayers cannot, for instance, deduct contributions made to a Roth IRA. Furthermore, qualified distributions are tax-free and withdrawals aren’t actually required until after the owner’s death.
Set Up a One-on-One Consultation Today
To learn more about the tax implications of opening an IRA account, reach out to dedicated Florida tax attorney, CPA, and former FBI Special Agent Ronald Cutler, P.A. by calling 386-490-9949 today.