IRA Regulations
A lot of people are a bit perplexed with IRA regulations since many articles have been written to make people understand what these are all about. These articles are complex and have differences from each other which may cause them to get confused. This article makes understanding IRA rules a simple thing to do. The first thing we will do is define IRA. Individual Retirement Account is what IRA stands for. This account gives the employees the chance to earn money for their retirement. There are three kinds of IRA: Traditional, Roth IRA and Simple IRA. These three are all personal savings retirement account but there are a number of distinctions among the three in terms of eligibility, contribution and withdrawal rules. IRA basics are the first things you should know about to understand how IRA works.
Eligibility, in its simplest definition, is the state of being desirable or worthy of choice. Who are qualified to make contributions to an Individual Retirement Account or IRA? Anybody who receives some sort of compensation is qualified to contribute to an IRA. In terms of age, Traditional IRA does have a particular requirement of it unlike the Roth IRA. In the traditional one, you must be below 70 ½ for you to be qualified. In simple IRA, the qualified ones are those who earn or receive more than $5000 for the past 2 years until the present.
IRA contributions also have some corresponding rules. Contribution is a payment exacted for a special purpose or a levy. Roth and Traditional IRAs have almost similar rules and regulations on withdrawal. In these two IRA types, owner can contribute up to $5000 if he is 49 years old or below. Hence, if he is 50 years old or above, he may catch up the amount he contributes by adding $1000. The Simple IRA is the one that goes a different way on contributions. In this IRA type, the owner can contribute to his account up to $11, 500 and the catch up contribution is $2500 for those aging 50 and above. It must be noted that these figures here are reflected from the 2010 published standards for IRA and may alter over a period of time due to possible inflation. An IRA owner must also be aware of the rules on withdrawals. In the three types, an IRA owner is only allowed to take withdrawals when he reaches the age of 59 ½. Any withdrawal taken by the owner before the age of 59 ½ is subject to a 10 % penalty tax unless a valid reason is provided and it is one of those reasons acceptable or allowable to the IRS. Such as disability, first home purchase, etc. However, there is a shade of variations on withdrawals for the three types and this is an important thing to learn about as it is part of the IRA regulations.
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