A personal investing account where an individual or couple (in separate accounts) can contribute money for their retirement is known as an IRA. An IRA allows for cash contributions of up to $4000 per year per individual. This contribution amount will increase in the future.
Investing in an IRA is something investors should consider if they do not have a company retirement plan or other vehicle for the future. Early withdrawals prior to age 59 1/2 are subject to a 10% penalty and the amount withdrawn is taxed as income.
Traditional IRA accounts are tax qualified, which means the contributions are tax deferred and grow tax free. When the money is drawn after retirement age, it is taxed as income.
Stocks, bonds, funds and most other negotiable securities are allowed to be purchased through a broker dealer in an IRA. These investments should be carefully chosen by you and your IRA financial planner.
There are many types of IRA's including: Traditional, Education and Roth.
An IRA rollover is when you close out the account and deposit the full proceeds to another retirement plan. This is allowed with certain restrictions. The rollover must be completed within 60 days and can only be done once a year.
An annuity contract used in an IRA must be nontransferable by the owner. The practical effect of this ruleis that the annuity cannot be used as collateral for a loan. That means that an annuity used to fund an IRA cannot be used as security for a loan, either from the insurance company that issued it or from any other lender. An automatic premium loan would be prohibited and, if taken, could cause the plan to become disqualified. The plan would simply cease to be an individual retirement annuity. When a plan is disqualified, the funds are immediately subject to income taxation and, if the individual is less than age 59˝, a penalty equal to 10 percent of the amount includible in the individual’s income may be imposed for premature distribution.
The premium for the annuity used to fund an IRA must not be a fixed premium; instead, any annuity used to fund an IRA must have flexible premiums. The annual premium may not exceed the maximum permitted contribution. Any dividend payable under the contract must be used to reduce future premiums or purchase additional benefits.
If the IRA is a traditional IRA, the individual’s entire interest must be distributed by April 1 of the year following the year in which he or she attained age 70˝, or distribution must begin by that date in accordance with required minimum distribution regulations.
Withdrawing money from IRA is normally done after age 59 1/2. This amount should be pre-set based on your tax bracket (since you will be paying taxes on this account), and the amount of money in it. You must take your IRS minimum distribution by age 70 1/2 or a 50% penalty will be assessed for that minimum amount.
IRA investing should be done after consulting with your financial planner, asset manager or broker dealer.
SEP - Simplified Employee Pension
SEP IRA's are used by small business that wish to have a simpler solution to their employee pension needs vs. 401k accounts and alike.
An employer makes a contribution to an IRA for each employee and takes a deduction for the contribution on the investing portion. An SEP pension account is available to part time or full time employees if they meet certain requirements related to age and years employed.
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