Individual Retirement Accounts (IRAs) offer various benefits to help individuals save for retirement. Each type of IRA and related account has unique rules governing eligibility, contributions, and tax treatment. Below is an overview of each account type, highlighting key rules.
Traditional IRA
A Traditional IRA allows individuals to contribute pre-tax dollars, which can grow tax-deferred until withdrawn.
– Eligibility: Available to anyone with earned income.
– Contribution Limits (2024): Up to $7,000 annually ($8,000if age 50+).
– Tax Treatment: Contributions may be tax-deductible, but withdrawals are taxed as ordinary income.
– Required Minimum Distributions (RMDs): Must start at age 73 (increasing to 75 in 2033).
– Early Withdrawals: Subject to a 10% penalty if taken before age 59½ unless an exception applies (e.g., first-time homebuyer or education expenses).
Roth IRA
A Roth IRA offers tax-free growth and tax-free withdrawals in retirement since contributions are made with after-tax dollars.
– Eligibility: Phased out for high earners (modified adjusted gross income limits in 2024: $$146,000 for singles; $230,00 for married couples filing jointly).
– Contribution Limits (2024): Up to $7,000 annually ($8,000 if age 50+).
– Tax Treatment: No deduction for contributions, but withdrawals in retirement are tax-free.
– No RMDs: Unlike Traditional IRAs, Roth IRAs are not subject to RMDs during the owner’s lifetime.
– Qualified Withdrawals: Tax- and penalty-free if the account has been held for at least five years and the owner is 59½ or older.
SEP IRA (Simplified Employee Pension IRA)
A SEP IRA is a retirement account designed for small businesses and self-employed individuals (with our without fulltime employees)
– Eligibility: Available to business owners and their employees.
– Contribution Limits (2024): The lesser of 25% of compensation or $69,000.
– Catch-Up Contribution?” No. SEPs are funded by employer contributions only. Catch-up contributions apply only to employee elective deferrals.
– Tax Treatment: Contributions are tax-deductible, and earnings grow tax-deferred.
– Roth-type contributions are allowed thanks to Secure ACT 2.0
– RMDs: Begin at age 73.
– Employer Contributions Only: Employees cannot contribute; all contributions are made by the employer.
SIMPLE IRA (Savings Incentive Match Plan for Employees)
A SIMPLE IRA is a retirement plan for small businesses with fewer than 100 employees.
– Eligibility: Available to employers and employees who earned at least $5,000 in the previous two years.
– Contribution Limits (2024): Up to $16,000 ($19,500 if age 50+).
– Employer Contribution: Employers must either match employee contributions (up to 3%) or contribute 2% of each eligible employee’s salary.
– Roth-type contributions are allowed thanks to Secure ACT 2.0
– Tax Treatment: Contributions reduce taxable income, and earnings grow tax-deferred.
– RMDs: Start at age 73.
Spousal IRA
A Spousal IRA allows a non-working or low-income spouse to contribute to an IRA based on the working spouse’s income.
– Eligibility: Spouse must file taxes jointly with the working spouse.
– Contribution Limits (2024): Same as Traditional and Roth IRAs ($7,000; $8,000 if age 50+).
– Types: Can be set up as either a Traditional or Roth IRA.
– Tax Treatment: Follows the same rules as the respective type (Traditional or Roth).
Solo 401(k)
2024 Solo 401(k) Contribution Limits
Must be self-employed with NO FULL TIME EMPLOYEES in any of the companies you own.
Here’s the deal. In 2024, you can sock away up to $69,000, or $76,500 if you’re 50 or older (catch-up contributions included). There are two parts to these contributions:
1.Salary Deferral Contributions
– Contribute up to $23,000 for 2024.
– If you’re 50 or older, you can add another $7,500, making it a cool $35,000.
– You decide whether these deferrals go in pre-tax or Roth dollars—giving you more control over how and when you pay taxes.
2.Profit-Sharing Contributions
– Your business can kick in up to 25% of your net earnings from self-employment.
– But the total combined contribution can’t exceed $69,000 (or $76,500 if you’re using those catch-up contributions).
The best part? These contributions aren’t locked in. You can adjust them anytime based on how the business is performing. So, if one year’s a banger and the next is a bit tighter, you can roll with it
– Roth Component: Can include a Roth feature for after-tax contributions.
-*Loans: Allows borrowing from the plan (up to $50,000 or 50% of the account balance).
– RMDs: Required at age 73 unless still working and not a 5% owner.
Health Savings Account (HSA)
Though not an IRA, an HSA offers triple tax benefits and can be used alongside retirement savings.
– Eligibility: Must be enrolled in a high-deductible health plan (HDHP).
– Contribution Limits (2024): $4,150for individuals and $8,300 for families ($1,000 catch-up if 55+).
– Tax Treatment: Contributions are pre-tax, earnings grow tax-free, and withdrawals are tax-free if used for qualified medical expenses.
– No RMDs: HSAs are not subject to RMDs.
– Retirement Usage: After age 65, withdrawals for non-medical purposes are taxed as ordinary income (no penalty).
Individual Retirement Accounts (IRAs) offer various benefits to help individuals save for retirement.
uDirect IRA Services, LLC is here to help you~! We are not a fiduciary and we do not offer tax or legal advice. We do not recommend specific investments, rather we guide you through the process to self-direct your retirement savings into assets you choose. To get started, we offer a free consultation. Schedule yours HERE – To open an account, click HERE.
