There are five main types of Retirement Accounts (IRAs). IRAs are crucial to creating a solid Asset Protection Plan. They ensure that you set aside viable funds for your retirement savings. Some IRAs can protect you from creditors and offer tax benefits, while others have numerous limitations and restrictions. We have outlined the benefits and drawbacks to the five main types of IRAs below:
Traditional “Regular” IRA
As the name implies, this is the simplest and most traditional retirement account. It is held at a custodian institution, such as a bank or brokerage, and can be invested in anything the custodian allows. A major benefit is the simplicity of its setup criteria. All you need is to make sure you have enough income to contribute to the account. The disadvantage is the more than usual restrictions on withdrawals. For example, you will need to pay taxes and a 10% penalty if you withdraw any amount before you are 59 ½ years old.
Roth IRA
The Roth IRA is a special retirement plan that is best known for its tax benefits. It is generally not taxed upon distribution. Instead of granting a tax break for funds you put into your plan, you receive a tax break on the funds that are withdrawn during your retirement. There are fewer restrictions on withdrawals for Roth IRAs which means you can withdraw any amount at any time. However, you must meet certain requirements in order to qualify for the tax benefits. One such requirement deals with your income. If your income level is too high, you cannot contribute to the Roth IRA.
SEP IRA (Simplified Employee Pension Individual Retirement Arrangement)
SEP IRAs are usually used by business owners to provide retirement benefits for themselves and their employees. If you are a business owner or are self-employed, you should consider adopting a SEP IRA. As the business owner, you will receive tax deductions for making contributions to your employees’ IRAs. You can also decide how much to contribute each year. The drawback is that not all employees will qualify as there is a list of requirements that must be met.
Self Directed IRA
With this IRA, the custodian or trustee holds the IRA assets on behalf of the IRA owner. The custodian or trustee keeps track of all the paperwork including filling IRS reports. An advantage is that the custodian or trustee will help you understand the rules and regulations of investing and may present you with proposals to improve your IRA. The drawback is its complexity. There are multiple legal regulations and limitations on contributions and withdrawals. You would not receive the same tax advantages with a Self-Directed IRA as you would with a Traditional IRA or Roth IRA.
Simple IRA (Savings Incentive Match Plan for Employees Individual Retirement Account)
A Simple IRA is similar to a 401(k). This tax-deferred employer provided retirement plan allows employees to set aside money that they earn in their IRA. Employees can then invest these funds to grow their retirement savings. A disadvantage is that only businesses with fewer than 100 employees can use this type of IRA. If your business exceeds this employee limit, you will need to find a new retirement plan. Furthermore, you as the business owner must contribute to the employee IRAs every year, even when your business has a bad year.
Contact The Presser Law Firm, P.A. today for a complimentary preliminary consultation.
The Presser Law Firm, P.A.
6199 N. Federal Highway, Boca Raton FL 33487
(561) 953-1050 or e-mail Info@AssetProtectionAttorneys.com
www.AssetProtectionAttorneys.com
