SEP IRA

Archive for April, 2010

Question: Can you explain what an IRA is (Traditional and Roth) as opposed to a regular savings account?

I understand that IRA savings accounts have a higher dividend rate, but that all I know.

Please put your answer in simple English. I got a technical answer from someone already, and it made little sense. Hence, this question.

Thanks!

Answer: IRAs are Individual Retirement Accounts. These accounts have special tax treatment and withdrawal restrictions unlike your typical savings account which provides free access to your money at any time.

Since IRAs are meant for retirement, you typically only put money into these accounts that you won’t need until you reach retirement age. generally speaking, there is a penalty if you withdraw money from an IRA before you reach age 59.5.

The main difference between a Traditional IRA and a Roth is how the money is taxed. Money added to a traditional IRA is tax deductible. This means if you put $2,000 in an IRA this year, you’d typically get to deduct $2,000 from your taxable income, thus saving on your current income taxes. But, when you withdraw the money from a Traditional IRA at some point in the future, it’s taxed as income.

A Roth IRA on the other had has no immediate tax benefits, but qualified withdrawals are tax-free. This means you won’t get a tax break up front for putting money into a Roth, but when you withdraw the money in retirement it will be completely tax free.

So, if you are looking to save money for retirement and know that you won’t need it for a long time, an IRA can be a good idea. But if you’re investing money you might need in an IRA just to get a better rate of return, you could be doing more harm than good since you are usually penalized for early withdrawals.

There are a number of special circumstances and a wide variety of investment choices with IRAs that need to be taken into consideration, so it might be best to get some good advice before jumping in.

So, remember: savings accounts are liquid and give you access to your money at any time. IRAs are meant for money you won’t likely need until retirement and come with special tax benefits, but may have penalties if you don’t use them properly.

Self Directed IRA How To

Question: Contribution date for SEP-IRAs?

I know traditional IRAs Contribution date is the due date of the return NOT including extensions. Is it the same for a SEP IRA? I couldn’t find it specifically in pub 590, but I’m assuming that it’s the same as a normal traditional IRA. Confirm?

Answer: You are looking at the wrong publication. You may want to check upon publication 560.

Deadline for setting up a SEP. You can set up a SEP for a year as late as the due date (including extensions) of your income tax return for that year.

http://www.irs.gov/pub/irs-pdf/p560.pdf

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Question: transferring 401k into SIMPLE IRA?

i have a 401k and just got laid off. I also have a 2nd job and have a SIMPLE IRA. Can i transfer the 401k into the ira and if so am i looking at any penalties in doing so?

Answer: not sure about a SIMPLE IRA – you can doa direct rollover to a plain old IRA with no penalty – just make sure the 401k company sends the money directly to the IRA – easiest thing to do is contact the 401k company and tell them you want to roll the money to an IRA WITH THEM – they will do all the work and you won;t get hit with any taxes or penalty