An Individual Retirement Account, known as an IRA, is a personal savings plan that allows you to set aside a certain amount of money each year for retirement while you benefit from a tax break.
There are two general types of IRAs:
Not everyone is eligible for opening a Roth IRA, and traditional and Roth IRAs both have set annual contribution limits.
|Roth IRA Contribution Limit||$5,500|
|Roth IRA Contribution Limit if 50 or over||$6,500|
|Traditional IRA Contribution Limilt||$5,500|
|Traditional IRA Contribution Limit if 50 or over||$6,500|
The amount you can contribute to a Roth IRA is phased out at certain levels of income. That means your contribution may be reduced — possibly all the way to zero — if your income is too high. The level where the reduction occurs is adjusted each year for inflation and depends on your filing status.
|Roth IRA Income Limits (for single filers)||Phase-out starts at $117,000; ineligible at $132,000|
|Roth IRA Income Limits (for married filers)||Phase-out starts at $184,000; ineligible at $194,000|
Simplified Employee Pension IRA
A Simplified Employee Pension IRA (SEP IRA) is a type of traditional IRA for self-employed individuals or small business owners. Any business owner with one or more employees, as well as anyone with freelance income, can open a SEP IRA. Contributions, which are tax-deductible for the business or individual, go into a traditional IRA held in the employee's name. Employees of the business cannot contribute — the employer does.
Savings Incentive Match Plan for Employees
A Savings Incentive Match Plan for Employees (SIMPLE IRA) is another type of traditional IRA for small businesses and self-employed individuals. Employees can contribute to their SIMPLE IRA and the employer is required to make a contribution on the employee's behalf — either a dollar-for-dollar match of up to 3 percent of salary or a flat 2 percent of pay — regardless of whether the employee contributes to the account.