Traditional Individual Retirement Account – IRA (U.S.)

If you were wise enough to invest in a Retirement Account, a potential headache will be when to start taking distributions, especially if you have a Traditional Individual Retirement Account (IRA).

Although your contributions and any growth over the years are tax-deferred, you will have to pay taxes on any amount you withdraw.

The IRS has this to say about Traditional IRAs:

A traditional IRA is a way to save for retirement that gives you tax advantages.

  • Contributions you make to a traditional IRA may be fully or partially deductible, depending on your filing status and income, and
  • Generally, amounts in your traditional IRA (including earnings and gains) are not taxed until you take a distribution (withdrawal) from your IRA.

See IRA Resources for links to videos and other information on IRAs.

Publication 590-A and Publication 590-B explain the details of IRAs including:

  • Setting up an IRA
  • Contributing to an IRA
  • Transferring money or property to and from an IRA
  • Handling an inherited IRA
  • Receiving distributions (making withdrawals) from an IRA
  • Taking a credit for contributions to an IRA
  • A comparison of traditional and Roth IRAs

This does not apply to a Roth IRA, but you still need to be careful about how and when to take your distribution, making sure that your retirement nest-egg will last as long as possible.

These above two are by far the most common types of IRA.

There are other types of retirement accounts that are less common:

  • A Payroll Deduction IRA plan is set up by an employer. Employees make contributions by payroll deduction to an IRA (Traditional or a Roth IRA) they establish with a financial institution.
  • An SEP is a Simplified Employee Pension plan set up by an employer. Contributions are made by the employer directly to an IRA set up for each employee.
  • A SIMPLE IRA plan is a Savings Incentive Match Plan for Employees set up by an employer. Under a SIMPLE IRA plan, employees may choose to make salary reduction contributions, and the employer makes matching or non-elective contributions.
  • A SARSEP – the Salary Reduction Simplified Employee Pension Plan – is a type of SEP set up by an employer before 1997 that includes a salary reduction arrangement.

Please contact us for more information and if you have any questions on which type of IRA works best for you.

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