Individual Retirement Arrangements, or IRA are accounts into which you can deposit money to provide financial security when you retire. You can set up an IRA with a:
Here are some tips and definitions regarding different IRA’s:
Traditional IRA: Contributions to a traditional IRA may be tax-deductible (depends on your Modified Adjusted Gross Income and if you are covered by a retirement plan at work or not). The amounts in a traditional IRA are not generally taxed until you take them out of the account. Annual contribution limit is usually $5,500/year plus $1,000 catch up contribution if you are over 55 years old.
Savings Incentive Match Plan for Employees: commonly known as a SIMPLE IRA. It allows employees and employers to contribute to traditional IRAs set up for employees. It is ideal as a start-up retirement savings plan for small employers. Employees usually can make salary deferrals contributions up to $12,500/year, plus $3,000 catch up if you are over 50 years old. Funds in the account also are not taxed until you take them out.
Simplified Employee Pension: Better known simply as an SEP-IRA, it is a written plan that allows an employer to make contributions toward their own retirement and their employees' retirement without getting involved in a more complex qualified plan. An SEP is owned and controlled by the employee. In this type of IRA, only the employer contributes to the SEP-IRA for employer and employee portions. The limit of contributions is $55,000/year or 25% of employee’s compensation.