Retirement Accounts - Individual
Traditional IRA’s
Contributions to traditional IRA’s are typically tax deductible. The amount you can deduct may be affected if you or your spouse work for a company that provides an employer sponsored retirement account. Your modified AGI may also affect the amount you cannot contribute. Except for very specific circumstances, you can not access this account until you are 59 ½. At age 70 ½, you will be required to take out minimum distributions, which will then be taxable. If you take money out before you are 59 ½, you will be subject to a 10% IRS penalty, as well as any taxes owed. In 2005, you may contribute $4,000 ($4,500 for those 50 years or older). Check with your tax advisor to see whether this type of IRA is right for you.
ROTH IRA’s
Contributions to this type of IRA are not tax deductible. However, as long as you follow the criteria of the ROTH, all earnings and growth associated with the ROTH are treated as tax-free earnings. Unlike the traditional IRA, you are not required to take minimum distributions from the account at 70 ½. You may be able to contribute $4,000 in 2005( $4,500 for those 50 years or older. Check with your tax advisor to see whether this type of IRA is right for you.
SEP IRA
This account allows you to make deductible contributions towards your own and your employees’ retirement. These plans are less complicated than many employer sponsored plans, and are often preferred by self-employed people with few employees. Contribution Limits: Contributions you make for a year to an employee's SEP-IRA are limited to the lesser of $ 42,000 or 25% of the employee's compensation. Compensation generally does not include your contributions to the SEP, but does include certain elective deferrals unless you choose not to include them.
These are abbreviated IRS definitions as they apply to SEP-IRA’s. Please contact your tax professional for further details.
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