IRA Rules - What Are They? | Savings

by JessicaHaug

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.

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 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 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%.

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.

It is possible to transfer funds from your 401k plan to an IRA if you change occupations. This is done by your employer before or just after you leave your job. By moving your money in this way, you can avoid paying penalties and paying tax.

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.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

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