How Do the Ira Rules Affect Me

One of the most favoured retirement options in America is the IRA (Individual retirement Account) which has certain IRA rules which apply. You will find that there are three accounts to choose from. They are the Traditional IRA, the Roth IRA and the Simple IRA. They have some rules which apply to all of them; when you consider factors such as withdrawal, contribution limits and eligibility, the rules change for each.

To have a Traditional IRA account you must be under the age of 70. It is also necessary for you to be able to make contributions from methods such as wages, bonuses and commissions. The exiting contribution limit is $5,000, with a catch up contribution figure of $6,000 (if you are over the age of 50). Unless you are fifty-nine and a half, a penalty will apply for early withdrawal.

There is no age limit placed on the Roth IRA account but you must be able to make regular contributions to the account. Like the Traditional IRA, the present limits are $5,000 for standard contributions and $6,000 for catch up contributions. Penalties will be incurred if withdrawals are made before the age of fifty-nine and a half. Withdrawals from a Roth IRA are possible if you intend to purchase your first property or are rendered disabled.

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.

The Traditional IRA and Simple IRA have the same withdrawal rules, apart from one stipulation. The Simple IRA has a “2 year period rule”. This means that any early withdrawal (within the first 2 years since the first employer contribution was made) can attract a penalty of 25% instead of 10%.

A few of the 401k rollover options can be used in conjunction with the Traditional and Roth IRA’s. The time when the 401k rollover can be used is when you intend to leave your job.

The choices given by the 401k rollover mean that funds can be transferred from your old employer to your IRA account before or soon after you leave that employer. This does not attract any penalty fees or tax charges.

If you are interested in getting an IRA or want to know more about IRA rules, you can find plenty of material on the internet. If it seems a bit confusing you could ask a finance professional to help you with your questions.