Depending on whether an individual has an IRA or SEP IRA, different contribution (deposit) and distribution (withdrawal) rules apply.

Individual Retirement Accounts (IRA)
Anyone with earned income can set up an IRA.

  • Contributions
    • For the 2008 tax year, most individuals can invest up to $5,000 into their IRA.

    • Investors who are age 50 and over can make additional "catch-up" contribution of $1,000.

    • Those who are covered by employer-sponsored retirement plans might not be permitted to contribute the full $5,000.

  • Distributions
    • IRA distributions cannot be made before age 59 ½ without a penalty.

    • Withdrawals before the minimum age can be made only under conditions of termination of employment or hardship - no breaking open the piggy bank to buy a Corvette.

    • If your client invokes either of these conditions, she cannot make another contribution for one year after the withdrawal.

    • Federal and state tax penalties apply to pre-retirement withdrawals.

    • IRA distributions must begin before age 70 ½. If an investor does not start withdrawing the money by that maximum age, she faces a tax penalty equal to half of the required amount not distributed.

  • Other Considerations
    • Married, single-income couples can establish additional spousal IRAs.

    • Also, IRAs can be bequeathed to a beneficiary in the event of the investor's death.

    • IRAs can be used to receive "rollover" payments from other retirement plans, including employer-sponsored plans and other IRAs. As long as the money stays in a tax-deferred account, then it remains a non-taxable event until the money is taken out as income.

Simplified Employee Pension (SEP)
An employer-sponsored flavor of IRA is the SEP IRA, in which an employer sets up IRAs for each qualified employee and contributes directly to them.

These small-business sponsored plans are considered easier to administer than a conventional pension plan, and employers have been moving toward these for some.

For everything and more on IRAs, see our feature Individual Retirement Accounts.



Types of Employee-Sponsored Plans

Related Articles
  1. Retirement

    Why Rollover Your Retirement Assets into an IRA?

    If you're in the workplace now, chances are you'll ask yourself this question eventually: 'Should I rollover to an IRA?' Here's a guide.
  2. Retirement

    What's the Tax Hit on an IRA Withdrawal?

    How much taxes you'll pay on IRA withdrawals depends on a variety of factors. Use this guide to plan ahead.
  3. Retirement

    How an IRA Works After Retirement

    You've read a lot about saving for your future retirement with IRAs. But what happens to the account when the future is here, and you actually retire?
  4. Retirement

    How Much It Takes to Max Out Your IRA

    IRAs have certain tax advantages that allow your nest egg to grow at a faster rate. But there are annual limits on how much you can contribute.
  5. ETFs & Mutual Funds

    IRAs and Roth IRAs

    What IRAs are: Tax-advantaged savings accounts for individuals. Pros: Tax benefits; investments grow tax-deferred and contributions may be deductible; numerous investment choices with range of ...
  6. Financial Advisor

    7 Top IRA Strategies for Your Clients

    With IRA season in full swing, advisors should consider these seven strategies for clients.
  7. Retirement

    5 Secrets You Didn't Know About Traditional IRAs

    A traditional IRA gives you a current-year tax benefit and future years of tax savings – minus the income restrictions that limit who can have a Roth IRA.
  8. Financial Advisor

    IRAs: Top Things You Need to Know About Them

    By understanding the major rules for both traditional and Roth IRAs, you'll be prepared to enjoy the benefits of these investment opportunities.
  9. Retirement

    Top 10 Mistakes To Avoid On Your IRA

    IRA rules are complicated. It's easy to make mistakes – and they can cost you big time.
  10. Retirement

    SIMPLE IRA Contribution Limits in 2016

    Learn the SIMPLE IRA contribution limits for 2016, with a brief summary of how the plan works, including eligibility and contribution and distribution rules.
Trading Center