Individual Retirement Accounts

Individual retirement accounts were introduced in 1974 as a means to encourage people under 70½ years old to save for their retirement. Taxpayers can reduce their taxable income by the amount of their contributions into an individual retirement account.

There are several types of IRAs:

Traditional IRA - contributions are often tax-deductible (often simplified as "money is deposited before tax" or "contributions are made with pre-tax assets"), all transactions and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed as income (except for those portions of the withdrawal corresponding to contributions that were not deducted). Depending upon the nature of the contribution, a traditional IRA may be referred to as a "deductible IRA" or a "non-deductible IRA."

Roth IRA - the newest form of IRA - contributions are made with after-tax money, all transactions within the IRA have no tax impact, and qualified withdrawals are usually tax-free.

Self-Directed IRA - a self-directed IRA that permits the account holder to make investments on behalf of the retirement plan.

SEP IRA - a provision that allows an employer (typically a small business or self-employed individual) to make retirement plan contributions into a Traditional IRA established in the employee's name, instead of to a pension fund account in the company's name.

SIMPLE IRA - a simplified employee pension plan that allows both employer and employee contributions, similar to a 401(k) plan, but with lower contribution limits and simpler (and thus less costly) administration. Although it is termed an IRA, it is treated separately.

If you need help determining which IRA is right for you, give Dugan & Lopatka Financial Services a call today.