Five
Flavors of IRA's
If you are at all concerned with your future, you have
probably looked into, or at least heard about, investing into an IRA. IRA's
are a great way for investing for retirement: they provide decent growth while
also providing a tax shelter for your money.
However, most people don't realize that there are
different types of IRA's available, with different rules and limits for each.
Here is a summary of each type:
Traditional IRA - With recent major increases in
the contribution limits, Traditional IRA's are becoming a popular way to save
towards retirement. Increasing from $2,000 a year up to $4,000 in 2005, and up
to $5,000 in 2008, and is deductible from your Adjusted Gross Income on your
tax return, these plans are available to anyone.
ROTH IRA - Unlike Traditional IRA's, ROTH IRA's
are NOT tax deductible when the funds are contributed. However, the earnings
accumulate tax-free and remain tax-free when distributed. So, with ROTH IRA's
you pay the taxes up front, where as with Traditional you pay when you cash
out.
The contribution limits are the same for ROTH IRA's as
for Traditional IRA's.
Simple IRA - Typically an employer sponsored
retirement plan, these fairly new programs are quickly gaining popularity. Not
only are these popular as an alternative for employer retirement plan, instead
of 401k's and the like, but it also allows employees to contribute up to
$6,500 per year.
Education IRA - These rather restrictive plans are
not as popular as others. Education IRA's allow you to contribute up to $500 a
year tax-free, and also includes tax breaks upon distribution when used for
educational expenses.
SEP IRA (Simplified Employee Pension) -
Often used Keogh retirement plans by employers and sole proprietors, because
of fewer administrative and tax filing requirements. SEP's allow you to
contribute up to 15% of your compensation into these employer established and
funded account.
