IRA Rules for Simple, Traditional and Roth IRAs
IRA Rules for Simple, Traditional and Roth IRAs
As a young employee with a rather high salary, planning for the future is greatly essential. Since there are a number of retirement plans that offer great benefits and have established different rules, we must understand each of them very carefully. One of the most famous retirement plans in the United States is the IRA or Individual Retirement Account. This is due to the tax advantages and wide investment options that are readily available. Before you take part in this plan, you must be familiar with the IRA rules. These rules and some background information about each plan are briefly explained on the following:
IRA Rules for Eligibility
• Simple IRA is a plan where there should be a maximum of 100 employees in a company which is typical for small businesses. Each employee must have at least $5,000 compensation in their two years of employment or is expected to reach this amount on the next year. On the other hand, Traditional IRA has two eligibility rules. First, you must be under 70 ½ years of age and second, you should be receiving some form of compensation such as wages, salaries, commission and bonuses. Like Traditional IRA, Roth IRA requires you to receive some form of compensation but you are still qualified no matter how old you are.
IRA Rules for Contributions
• The maximum contribution for each IRA type differs. These amounts are considered variables and could change every year. For Simple IRA account holders, they are required to contribute $11,500 and a catch up contribution of $2,500 for people aged 50 and above. Traditional IRA and Roth IRA have similar contribution limits. Account holders for these plans must contribute $5,000 a year and are also entitled to take a catch up contribution of $1,000 if you have reached the age of 50 or older.
IRA Rules for Distribution / IRA Rules for Withdrawal
• In general, any withdrawal done before you reach your retirement age (59 1/2 years) is subjected to the 10% tax penalty. The Simple IRA Rules for withdrawal differ from the other IRAs. Though the general rule still applies, there is an additional 2-year period rule that must be followed. This period starts on the first day the employee participated in the IRA. The tax penalty would be increased to 25% when distributions are made by the employee within the 2-year period and before the retirement age. This makes Simple IRA rules for withdrawal different from the two. On the other hand, Traditional IRAs have minimum distribution rules (MDR) that starts at the age of 70 ½. The withdrawal is calculated by using a life expectancy table where your balance in your account should be zero by the time you reach this expected age. Furthermore, both Simple IRA and Roth IRA allow early distributions when you become disabled or when the funds would be used for first time home purchases.
As an account holder of any of these retirement plans, an IRA custodian would be very helpful especially in understanding the IRA rules and regulations. Custodians would also assist you in processing every transaction done to your account such as filing required paper works and processing account statements. Being aware of these rules would be a step forward to gain more knowledge and to have the best of your retirement years.
Ira rules
Ira rules
- Posted in: Self Directed IRA ♦ IRA Custodian ♦ Ira rules ♦ ira rules for withdrawal
