What You Need To Know About IRA Rules | 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.

The first account, the Traditional IRA, stipulates that you must be less than 70 years old to open an account. You will also be required to make contributions from your salary, commissions and any bonuses you receive. The current standard contribution limit is $5,000. As well as this, if you are over the age of 50, a catch up contribution amount of $6,000 applies. If you decide to withdraw money from the Traditional IRA before the age of fifty-nine and a half you will be charged a penalty.

There is no restriction on age for the Roth IRA and so most people can have this type; the only requirement is that you can make the contributions into the account. The current limit for the standard contribution limit is $5,000. The catch up contribution amount is $6,000. After the first 5 years of making contributions you can withdraw money from the account. Penalties will be applicable before the age of fifty-nine and a half. You can withdraw funds from a Roth IRA if you intend to buy your first home or become classed as disabled.

The main difference with a Simple IRA plan is that it has to be offered to employees by their employer. You are not allowed to have any other kinds of plan and the company has to have less than 100 employees. This IRA is designed with small businesses in mind. Workers who join the plan must have earned at least $5,000 in one year. A deferment amount of $11,500 applies and catch up contribution for the over 50's if $2,500.

Withdrawing from a Simple IRA follows the same IRA rules as the Traditional IRA, with one exception. The "2 year period" rule means that any funds withdrawn within the first 2 years of the account will be subject to a penalty of 25%, not 10%.

The 401k rollover is closely linked with the different IRA's, apart from the Simple IRA. If you decide to leave your current employer for a new one, then you will need to find out about your 401k rollover options.

The choices given by the 401k rollover mean that funds can be transferred from your old employer to your IRA account before or soon after you leave that employer. This does not attract any penalty fees or tax charges.

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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