Individual retirement account

An individual retirement account or IRA is a form of "individual retirement plan". It is simply a savings account with large tax advantages. An IRA is not itself an investment. It is where an investor keeps assets such as stocks, bonds and mutual funds. A 401(k) is set up by an employer, but an IRA may be started by an individual. Other IRAs may be opened by small business owners and those who are self-employed.

Types of IRAs

There are different types of IRAs: Traditional IRAs, Roth IRAs, SEP-IRAs and SIMPLE IRAs. They vary as to tax filing status. Also they have different rules and conditions.

Traditional IRA - Contributions to a traditional IRA are, depending on income, tax status and whether the taxpayer has a retirement plan sponsored by his or her employer. In 2023, a taxpayer can contribute $6,500 to a traditional or Roth IRA. If over age 50, the catch-up contribution limit is an additional $1,000. Either amount can be reduced if the taxable compensation (wages for example) are less than limit set for the IRA contribution.
Roth IRA - contributions to Roth IRAs are not tax deductible. The amount that can be contributed is usually the same as a Traditional IRA.
SEP-IRA - Businesses of any size who want to set up an IRA for employees can use the SEP (Simplified Employee Pension Plan) IRA .
SIMPLE IRA - A SIMPLE (Savings Incentive Match PLan for Employees) IRA is for employees and employers to set up an IRA. This is for small businesses that do not have a retirement plan.

Prohibited asset types

Internal Revenue Code Section 408 prohibits IRA investments in life insurance and in collectibles such as artwork, rugs, antiques, metals (there are exceptions for certain kinds of bullion), gems, stamps, coins, alcoholic beverages, and certain other tangible personal property.

Participant-directed accounts

A participant-directed account (also called a self-directed IRA) is an IRA which is provided by some financial institutions in the United States. It allows alternative investments for retirement savings. Some examples of such alternative investments are: real estate, private mortgages, private company stock, oil and gas limited partnerships, precious metals, horses, and intellectual property. There is a risk of fraud when investing in Self-Directed retirement accounts.

References

1 2 "What is an IRA?". CNN. Archived from the original on 14 January 2016. Retrieved 10 December 2015.
1 2 3 "What is an IRA?". CNN Money. Archived from the original on 14 January 2016. Retrieved 10 December 2015.
1 2 3 "Individual Retirement Account - IRA". Investopedia, LLC. Retrieved 10 December 2015.
1 2 3 IRS (October 21, 2022). "How to reduce your taxes: Contribute to an IRA". IRS.gov. Internal Revenue Service. Retrieved 12 May 2023.
↑ "Simplified Employee Pension Plan (SEP)". IRS. Archived from the original on 26 January 2016. Retrieved 10 December 2015.
↑ "SIMPLE IRA Plan". IRS. Retrieved 10 December 2015.
↑ Bergman, Adam. "Choosing The Right Self-Directed IRA Depends On What You Want To Own". Forbes. Retrieved 2021-01-14.
1 2 "Investor alert: self-directed IRAs and the risk of fraud" (PDF). US Securities and Exchange Commission (SEC). Retrieved 10 December 2015.

Other websites

[CNN-1] 1 2 "What is an IRA?". CNN. Archived from the original on 14 January 2016. Retrieved 10 December 2015.

[CNNM-2] 1 2 3 "What is an IRA?". CNN Money. Archived from the original on 14 January 2016. Retrieved 10 December 2015.

[IVpedia-3] 1 2 3 "Individual Retirement Account - IRA". Investopedia, LLC. Retrieved 10 December 2015.

[PowellMW-4] 1 2 3 IRS (October 21, 2022). "How to reduce your taxes: Contribute to an IRA". IRS.gov. Internal Revenue Service. Retrieved 12 May 2023.

[5] "Simplified Employee Pension Plan (SEP)". IRS. Archived from the original on 26 January 2016. Retrieved 10 December 2015.

[6] "SIMPLE IRA Plan". IRS. Retrieved 10 December 2015.

[7] Bergman, Adam. "Choosing The Right Self-Directed IRA Depends On What You Want To Own". Forbes. Retrieved 2021-01-14.

[SEC-8] 1 2 "Investor alert: self-directed IRAs and the risk of fraud" (PDF). US Securities and Exchange Commission (SEC). Retrieved 10 December 2015.