Individual Retirement Accounts can provide security for your retirement. Retirement can be the best time of your life, but it takes research, planning, and involvement. There are many options and variables involved that can be confusing. Your age, your goals, your objectives, your risk tolerance, they all make a difference. Your career, your income, your lifestyle too. There are multiple paths you can take, which should ultimately lead you to a secure future. Below are listed the most common retirement plans and a brief summary of each. This can help you choose the plan that is right for you. Please see an Investment Professional to help you navigate your path.
IRAs were created to encourage people to save for retirement in addition to any other retirement plans. You can make an annual contribution of up to $5,500 or 100% of your earned income per year, whichever is less. Contributions are fully deductible, regardless of income amount, provided you are ineligible to participate in any other qualified plan. Contributions are partially deductible if your adjusted gross income (AGI) falls within established income guidelines. Any earnings you receive are accumulated tax deferred. Ordinary income tax applies upon withdrawal and a 10% early withdrawal penalty will be administered if withdrawal before age 59 ½. Catch-up contributions may be made annually for those over age 50.
Roth IRAs were set up to encourage more people to save for retirement. It allows after-tax contributions of up to $5,500 per individual, per year. Earnings from Roth IRAs are not taxed as they accrue nor when distributed from an account, provided you are at least 59 ½ and your account has been open at least five years upon withdrawal. There are no required withdrawals, but a 10% penalty does apply for withdrawal before age 59 ½.
Simplified Employee Pension plans (SEPs) are pension plans designed for self-employed individuals and small businesses. SEPs allow employers to make sizable contribution to employees accounts that are tax deductible to employers and can be excluded from an employee’s gross income. Contributions can vary or skip in any year. Ordinary income tax applies upon withdrawal and a 10% early withdrawal penalty will be administered if withdrawal is before age 59 ½.
A retirement plan that may be established by employers, including self-employed individuals. The employer is allowed a tax deduction for contributions made to the SIMPLE. The employer makes either matching or non-elective contributions to each eligible employee’s SIMPLE IRA and employees may make salary deferral contributions. The employer has two alternatives when it comes to making contributions. Contributions to SIMPLE IRAs are immediately 100% vested, and the IRA owner directs the investments.
The Individual 401(k) plan is designed for self-employed individuals and owner-only business. Such plans offer higher contribution limits than other plans and flexibility on the contribution dates. Penalty-free loans from the plan’s funding are available, provided the loan is paid back on time. Contributions are tax deductible and any earnings you receive from Individual 401(k) are tax deferred. Ordinary income tax applies upon withdrawal and a 10% early withdrawal penalty will be administer if withdrawal before age 59 ½.
You must begin taking distributions from a Regular IRA by April 15th of the following year after you reach the age of 70 ½. After that you must take your distributions by the end of each calendar year (Dec. 31st). Distributions are based on the value of your account and life expectancy. You can take the required amount from each of your IRA accounts, or you can take the required amount out of just one account, provided the overall distribution amount is correct. If you do not take your required distribution the IRS will impose penalties – which can be substantial. However you can always take more than the minimum required.
No matter what your age, you should know that retirement doesn’t just happen. You have to plan it. You have to save for it. You have to know your path. Alamo Capital can help you find and stay on your path.