The Complexity of an IRA

By Admin Prepare

November 25, 2017

For the most part, owning and funding an IRA seems pretty simple; Put money in, let it grow and then draw it out at retirement. Unfortunately, it is not that simple as there is a lot more to it than that.  An IRA has many factors and complexities to consider and understand.

The individual retirement account, most commonly referred to as the IRA, is widely known and one of the most popular types of accounts for saving money for retirement.  The Employee Retirement Income Security Act (ERISA) of 1974 created the IRA. Since then, the rules and regulations pertaining to IRAs and other similar vehicles have expanded and become more complex.  Today, many people do not know of and/or fully understand all the ruIes and regulations of IRAs and similar vehicles, such as:

Types:  There are many types (Traditional IRA, Roth IRA, Simple IRA, SEP IRA, Non-deductible) and subtypes (401(k), 403(b), 401(a)).  Each of these may have their own rules and guidelines.

Funding Guidelines: There are rules and guidelines that help determine if and how much you are allowed to contribute.

Withdrawal Guidelines:  An IRA is a retirement account, and the withdrawal guidelines are set up as such.

Tax Factors:  There are tax advantages and disadvantages depending on the type of IRA.

Possible Penalties:  If the rules and guidelines are not followed there could be penalties for withdrawals and contributions.

RMDs:  Most types require some type of required minimum distribution at a certain age with penalties if not followed correctly.

Inheritance rules and options: Different ways to pass on to heirs

Beneficiary strategies:  Recent provisions now allow tax savings benefits for beneficiaries

Investment options:  You need to understand the investment options for each type of plan

Rollover and Conversion options:  Options to help simplify and maximize your plan

There are many benefits with IRA type of plans.  However, all of these rules, regulations, features and guidelines play a significant role in how you can potentially grow and maximize your retirement nest egg.