All About IRA's and Retirement Planning

When it comes to IRA's and retirement planning...all the options, programs, etc...can be very confusing if you haven’t spent a good deal of time researching the details of them.

There are IRA's, employee stock options, 401k's and savings matching programs.

Where to start?

Below, we take a look at one of the most basic retirement savings plans: the IRA.

What is an IRA exactly?

Many people have heard the term IRA but perhaps do not know exactly what it stands for and how it can benefit a retiree. Basically, an IRA is an Individual Retirement Account.

An IRA can be set up outside of any employee options that you have...such as 401k and employee matching programs...and simply act as a savings account for your retirement.

There are basically three different kinds of IRAs, most commonly set up to help you save for retirement:

• Traditional IRA: This type is most commonly used. You can make contributions up to a certain limit. You are afforded tax deductions on a traditional IRA, but must pay income taxes on your IRA withdrawals. There is no penalty to withdraw on your traditional IRA once you reach 59.5, but you must start withdrawing by age 70.5.



• Roth IRA: Roth IRA's also work like individual savings account for retirement, but are non tax-deductible. They also have a cap on contributions made, however, limited withdrawals can be made without being subject to income tax.

  You can start making non-fee withdrawals from your Roth IRA once you reach 59.5, as long as the plan has been set up for at least 5 years. Moreover, (unlike a traditional IRA) you can continue to contribute to your Roth IRA past age 70.5.




• Spousal IRA: A spousal IRA comes in handy to a couple in which one is employed and the other is either unemployed or has little or no income. Typically, the employed spouse can set up and contribute to an IRA for his/her spouse if the couple is legally married and files a joint income return.

  Furthermore, the contributing spouse must be employed and have an income that is at least equal to the contributions made to the IRA. If the spouse wants to open a traditional IRA, he/she must be younger than 70.5. Conversely, if the spouse wants to open a Roth IRA, there are no age restrictions.

There are also a number of other more specialized, alternative, and add-on IRAS to choose from to help maximize your IRA's and retirement planning goals:

• Rollover IRA's: A Rollover IRA basically refers to the time period when you leave your current employer (for change of jobs or retirement) and have the option to rollover whatever retirement plan benefits/funds you may have had with them... into a new IRA to protect your accrued retirement funds.

  Otherwise, you can either take the accrued amount immediately for use and pay income taxes on it. In some cases, employers will keep the funds intact for you until you reach retirement... but this is not to be expected, so it’s best to have a plan of action before leaving your employer.




• Children/Education IRA's: Children/Education IRAs can be set up for just these purposes: children and/or education. The contributor typically sets up an IRA for their children or grandchildren as a means to save for future education.

  There is tax on this type of IRA but the profits earned are not as long. At the end of the term the child uses the IRA money for educational purposes.




• Payroll Reduction IRA's: Simply, a service that an employer offers to automatically subtract and save a portion of the employee’s earnings toward a retirement savings account.



• Simple IRA's: Simple IRA's are retirement plans in which the employer contributes regularly to an employee’s retirement plan or IRA account. Contributions are tax-deferred and typically higher than more popular individual Roth and Traditional IRAs.