Before going dizzy over IRAs, Roth IRAs, Traditional IRAs and others. Let us first slow down and really know the basics. IRAs or individual retirement accounts have become largely popular as a vehicle of saving up for the future. IRAs provide great benefits for workers. They are to set aside a part of their monthly income into this account. Using the part of their annual income, these can be invested on stocks, mutual funds and others. The earnings from such investments are tax deferred until withdrawal starts at age 59.5. The accumulation of these earnings can give great benefits to the account holder.
These retirement funding is usually similar to that of a 401k plan. The IRA tax rules are similar to that of a 401k plan except that 401k plans are employer-sponsored and the contributions come directly from the pay check. IRAs on the other hand, require the account holder to make his or her contributions directly. These contributions are a percentage of the annual income and are decided on by the account holder himself.
There are different IRAs that one could choose from but the two most common IRAs are the traditional and the Roth IRA. These two are subject to different IRA tax rules. IRA tax rules are really confusing and with different types of IRAs available. You would probably have a migraine before you can fully understand the IRA tax rules. The thing that you should remember regarding IRA and tax is that Roth IRA are not tax deductible while traditional IRA are tax deductible. Roth IRA requires no penalties for withdrawals given that the account is more than 5 years and the account holder have reached the age 59.5.
To set up an account one may prefer no fee IRA. There are a lot of investment companies out there that offers no fee IRA. However, in order to avail this offer, one should first comply with certain requirements the company may require. The requirements for a no fee IRA may vary from one company to another. So if you wish to create an IRA account you might as well take advantage of no fee IRA offers by reliable companies.
- Remember IRA Contributions (turbotax.intuit.com)