IRA Overview - Traditional, Roth, Pension, Simple
Types of IRAs
Keough Pension Plans
Keough Pension Plans are similar to traditional IRA's. However, the difference between them is that Keough Plans are divided into two groups: Defined Contribution Plans and Defined Benefit Plans. These two plans allow a much greater contribution on the part of the employee.
Defined Contribution Plan:
Defined Contribution Plans allow an employee to add up to $30,000 a year, or 20% of their income into an IRA fund. However, the level of contribution cannot be changed or altered and remains constant throughout its entire duration.
Defined Benefit Plan:
Defined Benefit Plans allow a large annual contribution, but differently than Defined Contribution Plans their funds are calculated differently. Rather than setting a contribution and making it regular and constant throughout the life of the plan, a benefit goal is chosen. Contributions are then assessed, with the help of an accountant or financial professional, on a regular basis to determine what is necessary to achieve the goal and what is available to contribute.
Roth IRA
Roth IRA's are very similar to traditional IRA's in that they allow for contributions from the income of an employee to fund a retirement investment. However, rather than being tax-deferred, contributions are made after taxes have been paid. This precludes pre-tax growth with more interest growing from more money, but once benefits are paid out upon retirement, no income is due on them.
Simple IRA
Savings Incentive Match Plans for Employees (Simple) IRA's are a way for smaller businesses to offer retirement plans to their employees in a way that they might not be able to. Very similar to 401k Retirement Plans but applying to businesses that have 100 employees or less, it allows workers to contribute tax-deferred income into a fund to be invested and developed for retirement.
Spousal IRA
If you or your spouse does not work or has an income less than $2,000, it might be difficult to provide for retirement. Spousal IRA's allow for a retirement fund that can be paid for by an individual's spouse should an individual not be able to afford contributions.
412(i) Plans
412i plans operate similarly to 401k plans. However, they are ideal for small businesses that seek to provide retirement funds to their employees when numbered six or fewer. Contributions are tax-deferred funds from income, and unlike 401k plans or other retirement funds, benefits can be cashed out upon retirement in a lump sum rather than being spread out in many payments.