IRA Services Review

Why Get an IRA?

If you’re ready to plan for retirement and want a sizeable nest egg later in life, you’ll find there are plenty of saving and investment options from which to choose. One option, an Individual Retirement Account, or IRA, allows you to invest in your future funds and get a big tax break. The interest you accrue through your stocks, mutual funds and bonds remains yours, and in some cases, such as with a Roth IRA, you will not be required to pay taxes on it. You can also avoid paying taxes either when you put the money into your IRA, or when you withdraw from your IRA. Most brokerage firms that offer IRA services also offer you help with choosing which stocks, bonds or mutual funds to invest in for your IRA. You also have the option of taking full control of your funds and trading them however you would like.

There are a few different types of IRAs: traditional, Roth, SIMPLE and SEP. Each one offers different benefits and penalties based on your employment, age and income. Some IRAs allow you to avoid taxes when you deposit money in your account, while others will allow you to withdraw funds without having to pay Uncle Sam. If you’re self-employed, or you own a small business, there’s an IRA specifically for you, too. Three top financial groups that give you a leg up on retirement include Fidelity, Vanguard and TDAmeritrade.

IRA Services: What to Look For

First, you’ll need to decide which type of IRA is right for you. Below, we’ve detailed the basics of the four most common IRAs available.

Traditional IRA
If you choose a traditional IRA, your contributions and transactions in your account are tax-deductible, but the federal government will tax any withdrawal. There are different policies, depending on how close to retirement you are. For example, in 2013-14, those who are 49 or younger are allowed to deposit up to $5,500 into their account, while those who are 50 and older are able to contribute up to $6,500.The amount the government allows you to contribute can change each year depending on inflation. As long as you and your spouse are younger than 70 ½ and at least one of you earns a taxable income, you are eligible to open a traditional IRA.

Roth IRA
Roth IRAs work a little differently than traditional IRAs. You will pay taxes on the funds you add to your account, but when you’re ready to make a qualified withdrawal, it will be tax-free. The eligibility restrictions are tighter on Roth IRAs, though. In order to qualify for a Roth IRA, your modified adjusted gross income (AGI) must be less than $181,000 if you are married and filing jointly. If you make less than $114,000 as the head of the household, whether you are filing as single or married and filing separately (and did not live together in the previous year), then you qualify. If you are married and filing separately (and living together), the limitations are strict – if you do not have income, you cannot contribute to a Roth IRA, and if your income is less than $10,000, you cannot contribute up to the limit.

If you are a business owner or self-employed, you might want to look into a Simplified Employee Pension (SEP) IRA or a SIMPLE IRA, which stands for Savings Incentive Match Plan for Employees. Both plans offer higher contribution limits than traditional and Roth IRAs, and they are more affordable than some other company retirement options. With an SEP IRA, the employer makes contributions, rather than the employee. If you are self-employed and you have made profit from your business, you can contribute to the SEP IRA on your own behalf. No taxes are applied to the money put into an account, like a traditional IRA. When an employee is ready to withdraw, they will pay taxes on the funds as if it were income. SIMPLE IRAs allow an employee to contribute, and an employer is required to do so.

Navigating the retirement plan field can be intimidating. If you have the right information from the start, you can be confident about your choice and about saving for retirement.