Individual retirement account: Difference between revisions
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An '''individual retirement account''' or '''IRA''' is a form of [[Pension|"individual retirement plan"]].<ref name=CNN>{{cite web |url=http://money.cnn.com/retirement/guide/IRA_Basics.moneymag/ |title=What is an IRA? |publisher=CNN|access-date=10 December 2015}}</ref> It is simply a [[savings account]] with large [[tax advantage]]s.<ref name=CNN/> An IRA is not itself an investment. It is where an investor keeps [[asset]]s such as [[stock]]s, [[bond]]s and [[mutual fund]]s.<ref name=CNNM>{{cite web |url=http://money.cnn.com/retirement/guide/IRA_Basics.moneymag/ |title=What is an IRA? |publisher=CNN Money |access-date=10 December 2015}}</ref> A [[401(k)]] is set up by an [[employer]],<ref name="CNNM" /> but an IRA may be started by an individual. Other IRAs may be opened by [[small business]] [[Ownership|owners]] and those who are [[Self-employment|self-employed]].<ref name=CNNM/> |
An '''individual retirement account''' or '''IRA''' is a form of [[Pension|"individual retirement plan"]].<ref name=CNN>{{cite web |url=http://money.cnn.com/retirement/guide/IRA_Basics.moneymag/ |title=What is an IRA? |publisher=CNN|access-date=10 December 2015}}</ref> It is simply a [[savings account]] with large [[tax advantage]]s.<ref name=CNN/> An IRA is not itself an investment. It is where an investor keeps [[asset]]s such as [[stock]]s, [[bond]]s and [[mutual fund]]s.<ref name=CNNM>{{cite web |url=http://money.cnn.com/retirement/guide/IRA_Basics.moneymag/ |title=What is an IRA? |publisher=CNN Money |access-date=10 December 2015}}</ref> A [[401(k)]] is set up by an [[employer]],<ref name="CNNM" /> but an IRA may be started by an individual. Other IRAs may be opened by [[small business]] [[Ownership|owners]] and those who are [[Self-employment|self-employed]].<ref name=CNNM/> |
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*'''SEP-IRA''' - Businesses of any size who want to set up an IRA for employees can use the SEP (Simplified Employee Pension Plan) IRA .<ref>{{cite web |url=https://www.irs.gov/Retirement-Plans/Plan-Sponsor/Simplified-Employee-Pension-Plan-(SEP) |title=Simplified Employee Pension Plan (SEP) |publisher=IRS |access-date=10 December 2015 |archive-date=26 January 2016 |archive-url=https://web.archive.org/web/20160126064611/https://www.irs.gov/Retirement-Plans/Plan-Sponsor/Simplified-Employee-Pension-Plan-(SEP) |url-status=dead }}</ref> |
*'''SEP-IRA''' - Businesses of any size who want to set up an IRA for employees can use the SEP (Simplified Employee Pension Plan) IRA .<ref>{{cite web |url=https://www.irs.gov/Retirement-Plans/Plan-Sponsor/Simplified-Employee-Pension-Plan-(SEP) |title=Simplified Employee Pension Plan (SEP) |publisher=IRS |access-date=10 December 2015 |archive-date=26 January 2016 |archive-url=https://web.archive.org/web/20160126064611/https://www.irs.gov/Retirement-Plans/Plan-Sponsor/Simplified-Employee-Pension-Plan-(SEP) |url-status=dead }}</ref> |
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*'''SIMPLE IRA''' - A SIMPLE (Savings Incentive Match PLan for Employees) IRA is for [[employees]] and employers to set up an IRA. This is for [[small business]]es that do not have a retirement plan.<ref>{{cite web |url=https://www.irs.gov/Retirement-Plans/Plan-Sponsor/SIMPLE-IRA-Plan |title=SIMPLE IRA Plan |publisher=IRS |access-date=10 December 2015}}</ref> |
*'''SIMPLE IRA''' - A SIMPLE (Savings Incentive Match PLan for Employees) IRA is for [[employees]] and employers to set up an IRA. This is for [[small business]]es that do not have a retirement plan.<ref>{{cite web |url=https://www.irs.gov/Retirement-Plans/Plan-Sponsor/SIMPLE-IRA-Plan |title=SIMPLE IRA Plan |publisher=IRS |access-date=10 December 2015}}</ref> |
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==Prohibited asset types== |
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Internal Revenue Code Section 408 prohibits IRA investments in [[life insurance]] and in collectibles <ref>{{Cite web|last=Bergman|first=Adam|title=Choosing The Right Self-Directed IRA Depends On What You Want To Own|url=https://www.forbes.com/sites/greatspeculations/2018/05/24/choosing-the-right-self-directed-ira-depends-on-what-you-want-to-own/|access-date=2021-01-14|website=Forbes|language=en}}</ref> such as [[work of art|artwork]], [[Carpet|rugs]], [[antiques]], [[metals]]<ref>{{Citation | url=https://investmenthoney.com/reviews-physical-gold-and-siliver-ira-backed-accounts-how-it-works/| title=The Taxation of Precious Metals and Collectibles| accessdate=2017-05-20}}</ref> (there are exceptions for certain kinds of [[bullion]]), [[Gemstone|gems]], [[Postage stamp|stamp]]s, [[coins]], [[alcoholic beverages]], and certain other [[tangible personal property]]. |
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== Participant-directed accounts == |
== Participant-directed accounts == |
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Revision as of 19:20, 22 November 2021
An individual retirement account or IRA is a form of "individual retirement plan".[1] It is simply a savings account with large tax advantages.[1] An IRA is not itself an investment. It is where an investor keeps assets such as stocks, bonds and mutual funds.[2] A 401(k) is set up by an employer,[2] but an IRA may be started by an individual. Other IRAs may be opened by small business owners and those who are self-employed.[2]
Types of IRAs
There are different types of IRAs: Traditional IRAs, Roth IRAs, SEP-IRAs and SIMPLE IRAs.[3] They vary as to tax filing status. Also they have different rules and conditions.
- Traditional IRA - Contributions to a traditional IRA are, depending on income, tax status and whether the taxpayer has a retirement plan sponsored by his or her employer.[3] In both 2015 and 2016, a taxpayer can contribute to a traditional or Roth IRA up to $ 5,500.[4] If over age 50, the contribution can be up to $ 6,500.[4] Either amount can be reduced if the taxable compensation (wages for example) are less than limit set for the IRA contribution.[4]
- Roth IRA - contributions to Roth IRAs are not tax deductible.[3] The amount that can be contributed is usually the same as a Traditional IRA.
- SEP-IRA - Businesses of any size who want to set up an IRA for employees can use the SEP (Simplified Employee Pension Plan) IRA .[5]
- SIMPLE IRA - A SIMPLE (Savings Incentive Match PLan for Employees) IRA is for employees and employers to set up an IRA. This is for small businesses that do not have a retirement plan.[6]
Prohibited asset types
Internal Revenue Code Section 408 prohibits IRA investments in life insurance and in collectibles [7] such as artwork, rugs, antiques, metals[8] (there are exceptions for certain kinds of bullion), gems, stamps, coins, alcoholic beverages, and certain other tangible personal property.
Participant-directed accounts
A participant-directed account (also called a self-directed IRA) is an IRA which is provided by some financial institutions in the United States.[9] It allows alternative investments for retirement savings. Some examples of such alternative investments are: real estate, private mortgages, private company stock, oil and gas limited partnerships, precious metals, horses, and intellectual property. There is a risk of fraud when investing in Self-Directed retirement accounts.[9]
References
- ↑ 1.0 1.1 "What is an IRA?". CNN. Retrieved 10 December 2015.
- ↑ 2.0 2.1 2.2 "What is an IRA?". CNN Money. Retrieved 10 December 2015.
- ↑ 3.0 3.1 3.2 "Individual Retirement Account - IRA". Investopedia, LLC. Retrieved 10 December 2015.
- ↑ 4.0 4.1 4.2 Robert Powell (8 December 2015). "How to reduce your taxes: Contribute to an IRA". MarketWatch, Inc. Retrieved 10 December 2015.
- ↑ "Simplified Employee Pension Plan (SEP)". IRS. Archived from the original on 26 January 2016. Retrieved 10 December 2015.
- ↑ "SIMPLE IRA Plan". IRS. Retrieved 10 December 2015.
- ↑ Bergman, Adam. "Choosing The Right Self-Directed IRA Depends On What You Want To Own". Forbes. Retrieved 2021-01-14.
- ↑ The Taxation of Precious Metals and Collectibles, retrieved 2017-05-20
- ↑ 9.0 9.1 "Investor alert: self-directed IRAs and the risk of fraud" (PDF). US Securities and Exchange Commission (SEC). Retrieved 10 December 2015.