A Brief Look At The IRA Rules

One of the most common retirement options in the United States is the Individual Retirement Account (IRA) which is governed by various IRA rules. There are three kinds of accounts, namely the Traditional IRA, the Roth IRA and the Simple IRA. Some of the IRA rules are the same for each of the accounts but there are certain differences in relation to eligibility, limits for contributions and withdrawals.

The Traditional IRA requires you to be under the age of 70 when applying for the account. You must also be able to fund such as wages, bonuses and commissions to contribute to the fund. The standard contribution limit for 2208/2209 is $5,000. On top of this you can pay a catch-up contribution of $6,000 if you are over 50. To withdraw funds without penalty with a Traditional IRA you must be over the age of fifty-nine and a half.

The Roth IRA places no age restriction on eligibility like the Traditional IRA does. It only stipulates that you can pay contributions to the account. The contribution limit for 2008/2009 is also $5,000. Again, the catch up contribution of $6,000 applies. You can withdraw funds from a Roth IRA 5 years after the first contribution was made. A qualified distribution is applicable at the age of fifty-nine and a half. The Roth IRA also allows you to make withdrawals if you become disabled or are a first time home buyer.

The main difference with a Simple IRA plan is that it has to be offered to employees by their employer. You are not allowed to have any other kinds of plan and the company has to have less than 100 employees. This IRA is designed with small businesses in mind. Workers who join the plan must have earned at least $5,000 in one year. A deferment amount of $11,500 applies and catch up contribution for the over 50’s if $2,500.

Withdrawing from a Simple IRA follows the same IRA rules as the Traditional IRA, with one exception. The “2 year period” rule means that any funds withdrawn within the first 2 years of the account will be subject to a penalty of 25%, not 10%.

The 401k rollover is closely linked with the different IRA’s, apart from the Simple IRA. If you decide to leave your current employer for a new one, then you will need to find out about your 401k rollover options.

Several of the options available with the 401k rollover mean that you can transfer existing funds from your pension account into an IRA. This can be done by your employer on your behalf before you leave the company. This method means that you are is not penalized and the funds are not subject to tax by being moved.

If you need to start an Individual Retirement Account or wish to find out more information about IRA rules, you will find a lot of information on the internet. Alternatively, you can discuss your options with your financial advisor.