Types of IRAs (11)

1. Traditional- a regular IRA available to those under age 70 1/2 who have earned income (i.e., job compensation). Earnings within the traditional IRA grow tax-deferred until withdrawal. Withdrawals must begin, and will be taxed, when the owner reaches age 70 1/2. If required distributions are not taken at that age, a 50% penalty will be assessed on the amount not taken.
2. Roth-  An individual retirement plan that bears many similarities to the traditional IRA, but contributions are not tax deductible and qualified distributions are tax free. Similar to other retirement plan accounts, non-qualified distributions from a Roth IRA may be subject to a penalty upon withdraw.
3. Education (EIRA)-  A savings plan for higher education. Parents and guardians are allowed to make nondeductible contributions to an education IRA for a child under the age of 18. The education IRA is now referred to as the Coverdell ESA.

1. SEP (Simplified Employee Pension)- A retirement plan that an employer or self-employed individuals can establish. The employer is allowed a tax deduction for contributions made to the SEP plan and makes contributions to each eligible employee’s SEP IRA on a discretionary basis.
2. Simple (Savings Incentive Match Plan for Employees IRA)- a traditional IRA set up by an employer for a firm’s employees. An employer may contribute up to $30,000 or 15% of an employee’s compensation annually to each employee’s IRA. The employer sponsoring the SIMPLE will also make a matching contribution based on a percentage of the employee’s pay.
3. Self Directed- A retirement account in which the individual investor is in charge of making all investment decisions. The self-directed IRA provides the investor with greater opportunity for asset diversification outside of the traditional stocks bonds and mutual funds, as real estate, private tax liens and notes can be purchased. All securities and investments are held in an account administered by a custodian or trustee.
4. Individual Retirement Annuity- either a traditional or Roth IRA set up with a life insurance company through the purchase of a special annuity contract.
5. Group IRA (Employer and Employee Association Trust Account)- a traditional IRA set up by employers, unions, and other employee associations for employees or members
6. Spousal IRA- A Traditional or Roth IRA established and funded by an individual for his or her spouse.
7. Rollover (Conduit) IRA- A traditional IRA that holds only assets that were distributed from a qualified plan. Typically, the intention of using this type of plan is to store assets until they can be rolled into  a new employer’s qualified plan.
8. Inherited IRA- An individual retirement account that is left to a beneficiary after the owner’s death. If the owner had already begun receiving required minimum distributions (RMDs) at the time of his or her death, the beneficiary must continue to receive the distributions as already calculated or submit a new schedule based on his or her life expectancy.

How can you fund and IRA?
Generally, for purposes of contributing to IRAs, 403(b)s and other retirement accounts, compensation is defined as income received in exchange for personal services. This does not include pension income.

If you are not eligible to contribute to an IRA or a qualified plan, you may consider other options such as tax-deferred annuities, investing your assets in a portfolio balanced to suit your financial profile, etc. You may want to contact your financial consultant to discuss the various options and determine which is best for you.

What is a 401K ?

A 401K is a long term savings plan which is designed to accumulate money towards retirement. It is so-named after the section of the Internal Revenue laws which allow this particular kind of financial planning option. 401K plans are typically only available through an employer; the money is generally taken out of the employee’s paycheck every week or month and deposited in the account.
An employee chooses the amount they want taken from their check every payday. This money is then invested in such things as money market funds, growth funds and index based stock funds, which will accumulate value over time. The maximum pre-tax amount an employee can contribute to the plan varies by year.
One of the biggest advantages of a 401K is that many employers will match employee contributions. Supposing an employee decides to contribute 10% of their salary every month towards their 401K, their employer may choose to match this and contribute the same dollar amount themselves. Employers are not obligated to match contributions, but almost 80% of companies do to some extent.

How can you fund a 401K ?

Send a percentage of your pay check to your 401K account.

What is a 457(b)?

There are two types of 457(b) plans. One is for government employees, including state and local workers, police officers, firefighters and some teachers. The other covers only highly compensated employees of non-profit corporations, such as hospitals, charitable groups and unions.
All 457(b) plans share advantages over other types of employer-provided retirement plans, such as 401(k) and 403(b) plans. Chief among them is that there is no 10% penalty for taking money out of 457(b)s before workers turn 59 1/2, as long as they are retiring or ending their employment. Income taxes are owed but can be avoided if the money is rolled into another retirement plan. Non-profit workers can only roll the money over into another 457(b), but government plans can be rolled into a personal IRA or any employer-sponsored plan.

Because of the major differences between 457(b)s and most other retirement plans, they are considered “non-qualified” by the government. That means that 457(b)s are not governed by the same laws that created 401(k), 403(b) and most other workplace retirement programs. However, the money saved in a 457(b) account must be held in trust for the employee, or inside a custodial account or an annuity, which means it can only be used for the employee’s benefit.

• • How can you fund your 457(b)?
  • Employees set aside money for retirement on a pretax basis through a salary deferral agreement with their employer. Under this arrangement, the employee agrees to take a reduction in salary. The money reduced is directed into an investment company offered by the employer. The 457(b) contributions grow tax free until withdrawal at retirement or termination of employment.
  • Like 403b and 401k plans, 457 plans allow employees the chance to defer taxation on pre-tax contributions they make to their retirement savings. It is is a deferred compensation plan through which employees put aside some of their income to in a tax-deferred retirement account. This means that employees can save money without paying income tax on it, or on its earnings, until retirement.
  • 457f plans allow some non-governmental organizations to supplement retirement income for their employees. There are no contribution limits with these plans, though the contributions remain the employer’s property until retirement. Tax-deferment on these plans only lasts as long as employees face a “substantial risk of forfeiture”, which means the money is available to any of the employer’s creditors and the employee has vesting requirements to be eligible for distributions.
  • What is a 403b?
  • The 403(b) is a tax deferred retirement plan available to employees of educational institutions and certain non-profit organizations as determined by section 501(c)(3) of the Internal Revenue Code.  Contributions and investment earnings in a 403(b) grow tax deferred until withdrawal (assumed to be retirement), at which time they are taxed as ordinary income.
  • How can you fund your 403b?
  • You set aside money for retirement on a pre tax basis through a salary reduction agreement with your employer. You choose from among the vendors offered by your employer where your money is to be invested. The money grows tax free until withdrawal at retirement.
  • Typically, the plan has two kinds of expenses: administrative costs and investment management fees. Investment management fees are usually charged by the investment company as a percentage of the total assets under management — the total value of your account. These fees range from about 0.2% on the low end to 3% on the high end. For example, if you had $100 invested, a fee of 0.2% would cost you 20 cents a year, while a fee of 3% would cost you $3 a year