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Your Guide On IRA Plans Comparison

By: Tony Shipp

Generally, in a corporation any individual has a responsibilityto save part of his income to secure his future. But as there is heavy taxassessment on personal income, the rate of savings is low. Thus, in the 1970sthrough parliamentary legislation, there was an arrangement made by thegovernment to provide a special treatment in the tax code. IRA has a specialstatus in the code of the IRS. This special treatment shelters the fundsaccumulated under IRA from tax assessment.

The first arrangement that came under this scheme is nowknown as Traditional IRA. Under this retirement plan, all earning individualscould contribute a certain amount to an IRA account each year. The interestearned is exempted from taxation. Unless the amount is withdrawn from theaccount no taxation is laid. The interest calculation is done on compoundprinciple basis, which results in large funds. However, the tax bracket inwhich the person's earning is assessed and if he retires in the same taxbracket, the withdrawn amount will also be assessed on that basis only. Thiswould give maximum benefit to the individual.

There is a set limit to the amount of contribution to yourIRA account. You can contribute up to $4,000 in a fiscal year. For those whoare above 50 years of age, they are allowed a $1000 extra to their annualcontribution. Other versions of this schemes are SEP IRA, ROTH IRA, ROLLOVERIRA which cater to different saving situations. The primary purpose of allthese plans is to provide tax-deferred growth of money.

The SEP IRA plan stands for Simplified Employee Pension. Itis an employer sponsored plan for the employees and can be availed by theemployer too, provided he fulfills the limit of 100 employees. Contribution tothis kind of IRA account is limited to $41,000 or 25 percent of the grossadjusted income.

The Roth IRA has been the most preferred IRA since it waslaunched in 1997. This plan has the reverse rule of allowing tax deductedcontributions and making withdrawal tax free. Above that a Roth IRA accountalso need not be distributed at the age of 70.5 of the account holder. Butthere is an income slab of eligibility of $110,000 for single individuals and$156,000 for earning couples. This arrangement has made much of the earningpopulation to open up Roth IRA accounts just after attaining their legal age.

A ROLLOVER IRA is like an emergency tax shelter. If anindividual is moving to a new job or has retired early, then he would not liketo deprive his growing funds of tax shelter. AlsoFind Article, he would like to keep thatfund separate from the annual contribution that he makes to the IRA in the newworkplace.? ROLLOVER IRA caters to thissituation. This is an account which allows all the benefits under the IRAscheme and is distributed by the age of 70.5 years of the employee.

All IRA accounts operate with the financial institution thatis authorized by the IRS. Within the various schemes the most beneficial isRoth IRA which allows you to avail of it right after 18 years of age. You canalways open other IRAs later on. This way there is optimum accumulation of funds.Even compared to 401 (k) plan it has the advantage of carrying on contributionafter 70.5 years too. Thus a comparison of an IRA makes the point obvious thatit is an efficient wealth building tool for regular earners as well.

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