What The Heck Is An Ira????
An Ira is an Individual Retirement Arrangement or sometimes called an Individual Retirement Account. There are many different kinds of Iras and you may already be contributing to one through your 401k plan. These plans are a place that you can save your money for retirement and earn interest at the same time. Now as you know, with all good things there must be hurdles, especially if it has anything to do with the Irs, and Iras are no exception. There are specific limits on the amount you can contribute each year depending on what kind you have.
In these articles we will be discussing primarily the Roth401k and the Roth Ira and how these differ slightly from each other. The Ira names that you hear bantered about the most are: SEP-IRA-Simplified Employee Pension-traditional Ira set up by employers for their employees. SIMPLE IRA-Savings Incentive Match Plan for Employees- usually used by smaller employers as the contribution limits are smaller. ROTH IRA-This can be a privately owned investment or it can be part of your employers pension plan in which case it is called a Roth 401k. There are other terms you will also hear.Words and phrases like Contributions, Distributions, Roll Overs, Adjusted Gross Income, Qualified and non-qualified Distributions, Compensation. The following are the definitions as they apply to Iras: CONTRIBUTIONS-Money you put into an Ira DISTRIBUTIONS-Money you take out of an Ira ROLL OVERS-The action of changing one type of Ira to another type. ADJUSTED GROSS INCOME-The IRS defines this as) Adjusted gross income is defined as gross income minus adjustments to income. If your income (e.g., change in job) or personal circumstances (e.g., change in marital status) did not change from last year, we suggest you refer to your 2005 federal income tax return to get a quick estimate of your 2006 AGI. On your 2005 federal tax return, please refer to: Line 4 if you filed a Form 1040EZ Line 21 if you filed a Form 1040A Line 37 if you filed a Form 1040 Important Reminder: If your filing status was single on your 2005 tax return and you plan to file a joint return for 2006, then make sure to add your spouse's 2005 AGI to yours when estimating your 2006 AGI. AGI is defined as your taxable income from all sources including wages, salaries, tips, taxable interest, ordinary dividends, taxable refunds, credits, or offsets of state and local income taxes, alimony received, business income or loss, capital gains or losses, other gains or losses, taxable IRA distributions, taxable pensions and annuities, rental real estate, royalties, farm income or losses, unemployment compensation, taxable social security benefits, and other income minus specific deductions including educator expenses, the IRA deduction, student loan interest deduction, tuition and fees deduction, Archer MSA deduction, moving expenses, one-half of self-employment tax, self-employed health insurance deduction, self-employed SEP, SIMPLE, and qualified plans, penalty on early withdrawal of savings, and alimony paid by you. Do not deduct your standard or itemized deductions. For more details, see the Instructions for Form 1040 or you may want to refer to the Form 1040. How's that for a mouthful? To continue QUALIFIED DISTRIBUTION(Withdrawal)-Money you have removed from an Ira when you ' have' followed the rules of withdrawal. NON-QUALIFIED DISTRIBUTION-Money you have removed from an Ira when you 'have not' followed the rules of withdrawal. COMPENSATION- Money you have received for your labour as reported on your W-2 form. It does not include income from Social Security, pensions, interest, dividends, rental income or capital gains. |