Traditional IRA<\/h4>\n
<\/strong> Any individual under the age of 70\u00bd who has earned income can participate in an IRA.\u00a0 Contribution levels allow up to 100% of an individual\u2019s annual income, but cannot exceed contribution limits set each year by the federal government.\u00a0 Any contribution that exceeds annual limits will be subject to a 6% “excise” tax.\u00a0 Individuals who are 50 years or older are allowed to make \u201ccatch up\u201d contributions that exceed normal annual limits.<\/p>\n <\/p>\n Withdrawal from an IRA owner\u2019s account must begin no later than April 1st following the year an individual reaches 70\u00bd years old.\u00a0 From this time on, a minimum amount must be withdrawn every year from the IRA to avoid a penalty tax on such difference.<\/p>\n If an individual withdraws IRA funds prior to reaching age 59\u00bd, the withdrawal will be viewed as income, and not only will it be taxed as income, it will also be subject to a 10% penalty fee because it is being withdrawn prematurely.\u00a0 Exceptions to this penalty tax include withdrawals for a first-time home purchase, higher education expenses, or to cover qualified medical expenses.<\/p>\n <\/p>\n As a result of the Taxpayer Relief Act of 1997, the Roth IRA was created.\u00a0 Roth IRAs work in an opposite manner to traditional IRAs in that they use post-tax dollars<\/em> instead of pre-tax dollars for contributions.\u00a0 They accumulate, build interest, and upon withdrawal, funds are not taxed<\/em>.<\/p>\n While the maximum amount of annual contribution is the same as with a traditional IRA, a Roth IRA does not have restrictions on participant status if an individual is also covered by an employer\u2019s plan, or already owns a traditional IRA.\u00a0 Also, owners of a Roth IRA do not have to wait until they turn 70\u00bd in order to begin withdrawals.\u00a0 However, if an individual owns both a traditional IRA and a Roth IRA, his or her maximum annual contribution limit is considered to be collective for both types, not for each IRA.<\/p>\n Withdrawals from Roth IRAs can be either qualified<\/em><\/strong>, one of which that provides for tax-free distribution of earnings, or nonqualified<\/em><\/strong>, in which earnings are subject to tax.<\/p>\n Qualified withdrawals are allowed for individuals over age 59\u00bd, disabled individuals, or beneficiaries of IRA individuals who have died, though funds must be held in the account for a minimum of five years.\u00a0 IRA funds can also be withdrawn without penalty for first time homeowners.<\/p>\n Nonqualified withdrawals are similar to traditional IRAs and the interest or earnings portion of the fund is taxed as income as well as assessed a 10% penalty tax for premature withdrawal.<\/p>\n","protected":false},"excerpt":{"rendered":" Planning for Retirement Individual retirement accounts, or IRAs, were enacted by Congress in 1974 as part of the Employee Retirement […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false},"categories":[52,53,3],"tags":[74,85,84],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.nationalonlineinsuranceschool.com\/insurance-license-blog\/wp-json\/wp\/v2\/posts\/1113"}],"collection":[{"href":"https:\/\/www.nationalonlineinsuranceschool.com\/insurance-license-blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nationalonlineinsuranceschool.com\/insurance-license-blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nationalonlineinsuranceschool.com\/insurance-license-blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nationalonlineinsuranceschool.com\/insurance-license-blog\/wp-json\/wp\/v2\/comments?post=1113"}],"version-history":[{"count":50,"href":"https:\/\/www.nationalonlineinsuranceschool.com\/insurance-license-blog\/wp-json\/wp\/v2\/posts\/1113\/revisions"}],"predecessor-version":[{"id":2259,"href":"https:\/\/www.nationalonlineinsuranceschool.com\/insurance-license-blog\/wp-json\/wp\/v2\/posts\/1113\/revisions\/2259"}],"wp:attachment":[{"href":"https:\/\/www.nationalonlineinsuranceschool.com\/insurance-license-blog\/wp-json\/wp\/v2\/media?parent=1113"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nationalonlineinsuranceschool.com\/insurance-license-blog\/wp-json\/wp\/v2\/categories?post=1113"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nationalonlineinsuranceschool.com\/insurance-license-blog\/wp-json\/wp\/v2\/tags?post=1113"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}![\"\"](\"https:\/\/www.nationalonlineinsuranceschool.com\/insurance-license-blog\/wp-content\/uploads\/2011\/04\/IStock-photo-Nick-4-14-11.jpg\" "\\"Traditional")
Simply known as an IRA, individuals and self-employed business owners have the opportunity to save money for retirement while receiving a current tax break.\u00a0 As the amount contributed accumulates, it grows tax deferred until it is withdrawn at retirement.\u00a0 Contribution amounts may be fully or partially deducted from current income, which results in a lower current income tax for the individual.<\/p>\nRoth IRA<\/h4>\n