Traditional IRA
This IRA allows you to receive a tax deduction up-front, so your earnings grow tax deferred.
The details:
- W-2 earned income (no contributions after age 70 1/2)
- Future contributions may be tax-deductible depending on filing status, income and other aspects
- Annual contribution limit of $6,000, additional $1,000 for those age 50 and older
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Roth IRA
With a Roth IRA, withdrawals are tax-free when certain conditions are met, which is why this is most commonly used if you don't need a tax deduction up-front.
The details:
- W-2 earned income (no age limit on contributions)
- No required minimum distribution at age 70 ½
- Annual contribution limit of $6,000, additional $1,000 for those age 50 and older
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Simple IRAs
The Savings Incentive Match Plan for Employees (SIMPLE) IRA, is a traditional type of IRA that provides business owners a way to offer retirement accounts to their employees. Employers can match a percentage of an employee's total compensation if the employee makes salary deduction contributions. This option is less paperwork and costs less than a traditional 401(k).
The details:
- Employers must have 100 or fewer employees
- Employers may contribute on behalf of the employee
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SEP IRAs
Simplified Employee Pension (SEP) IRAs are set up by employer-only contributions, but still allow a self-employed individual to make IRA contributions.
The benefits:
- Simple and easy setup
- Taxes are deferred until withdrawn
- Employers are not required to contribute every year
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Please consult your tax advisor regarding deductibility and eligibility.
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