IRA, The other Retirement Savings Option

Personal Note from Clyrese

I hope you read and enjoyed last months blog I talked to you about my current situation with my 401(k).

  When I left that job and moved to another profession and opened a 401(k) account I changed my work status from full time to PRN (as needed) I am no longer able to contribute to my retirement plan. So I was going to begin looking into other retirement options.  What I found out is that IRAs are the best option for me.   A Roth IRA does not have any income restrictions except I must have earned income. Since I can't contribute to my current retirement plan, I think that is the best plan.

What is an IRA???

The IRA means Individual Retirement Account.  It is basically a savings account with big tax breaks making it an ideal to stack away cash for retirement.

There are many types of IRA accounts traditional, ROTH, SEP, and Simple.  Each account does different things but serve the same purpose, help you save the most money possible for retirement.  IRAs have eligibility restrictions based on income and employment status.

Traditional vs Roth IRA

Before I get into explaining the difference between a traditional IRA and a Roth IRA I want to explain what each one means.  A traditional IRA is:

Traditional IRAs requires you to pay taxes on the back end.  Meaning taxes are paid when you begin withdrawing money when you retire.  I don't know about you but if I am living on a fixed income I don't want to have to worry about paying taxes on the income I have set aside so I can live comfortably.

Anyone with a earned income can contribute in this particular IRA. In some cases you can avoid paying taxes on your traditional IRA by paying taxes on it when you begin putting money in it.  When doing this it is now a Roth IRA. 

Roth IRA do not require you to pay taxes when you begin withdrawing your money.  Unlike traditional IRAs there are income restrictions.  However, they are more flexible than the traditional IRA  and you can keep your money in your account as long as you want.  

SEP IRA

An SEP (Simplified Employee Pension) is a plan that provides business owners with a simplified method to contribute toward their employees’ retirement as well as their own retirement savings.  It is a traditional IRA and follows the same investment, distribution, and rollover rules.

Setting up an IRA is done through a participating employer. This type of IRA is not as common as it used to be in the 80's.

Simple IRA

Simple IRA plans can provide a significant source of income at retirement by allowing employers and employees to set aside money in retirement accounts. SIMPLE IRA plans do not have the start-up and operating costs of a conventional retirement plan.

What happens to your IRA after you die?

When you open your IRA account you will designate one or more beneficiaries to receive your IRA.  If you pass away before retirement your beneficiaries can either take out the money in a lump sum or receive your IRA as payments in installments over the course of a time.  

Your spouse can move the funds to your IRA over to his or her IRA without paying taxes.  

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