Ira Rules – What Are They

The Individual Retirement Account (IRA) is a popular form of account in America and is governed by IRA rules. There are three main types of IRA account; the Roth IRA, the Traditional IRA and the simple IRA. Some of the rules may differ for each of the types in relation to eligibility, contribution limits and withdrawal rules.

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 Simple IRA is a plan that needs to be offered to you by your employer. They cannot offer any other plans and must have less than 100 employees. Employees wishing to participate in this plan must have made over $5,000 in one year. In the tax year for 2009 employees included in the Simple IRA can defer $11,500. If the employee is over 50 they can give a catch up contribution of $2,500.

The withdrawal rules are for the Simple IRA are the same as the Traditional IRA, except there is the addition of the “2 year period rule”. This means that any withdrawal within the first two years of an employer’s first contribution being made, a penalty of 25% instead of 10% may apply.

If you have a 401k plan you can use the 401k rollover options with the IRA accounts, with the exception of the Simple IRA. If you change your job, then this is when the 401k rollover comes into play.

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.