Thursday, November 15, 2012

Types of Accounts: Tax Deferred (IRA's)

  • Tax Deferred Accounts: these types of accounts are typically Individual Retirement Accounts (IRA’s); however there are other retirement and non-retirement accounts that can be tax deferred. We will get into those types of accounts later, for now let’s stick to IRA’s. There are several different types of IRA’s to choose from. Most brokerage firms offer Traditional, Roth, Rollover, SEP, and the newest a SIMPLE IRA. Every time a deposit is made into an IRA it’s considered a contribution, similarly when a withdrawal is made it’s considered a distribution. IRA’s have annual limits as to how much one can contribute. These limits are set by the IRS and are based on ones income. It’s important to note that although IRA’s are tax deferred, it does not suggest they are tax free. This simply means the gains realized in the account aren’t taxed immediately, instead they are taxed when a distribution is made, hence the term “deferred”. How does one know which IRA to choose? Like choosing a broker, there are several factors to take into consideration. First, let’s take a look at these different types of IRA’s so we can get a better understanding of how they work and which will be most beneficial for your investment objectives.

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