Individual Retirement Account (IRA) Information

IRA Information

An IRA, or individual retirement account, is the foundation of most people’s retirement plan. This investment opportunity permits a taxpayer to contribute a portion of their income up to a certain amount. You are allowed to contribute up to $5,500-$6,500/year – depending on your income, tax-filing status, and other factors.

With a traditional IRA, these contributions are tax-deductible. However, all contributions can realize returns on a tax-deferred basis until retirement and withdrawal.

When you begin to withdraw from your Retirement Account at age 591/2, withdrawals from the IRA will be taxable. The benefit of postponing this tax payment is belonging to a lower tax bracket in retirement. Once you reach the age of 70½, withdrawals from an IRA become mandatory. If your IRA contains different assets in it, you can choose the specific amounts of assets you remove and when. Furthermore, an IRA is created solely for a single individual person. It is not associated with one’s employer or workplace.

IRAs can contain a wide variety of asset types and may be invested in any asset type that the custodian institution, such as a bank or brokerage, allows. Stocks, bonds, mutual funds and ETFs are some of the more common components of an IRA. However, with a self-directed IRA, you can hold more types of assets, including precious metals and real estate. Due to their subjective values, collectibles, including antiques and collectible coins, and cash-value life insurance, are prohibited from an IRA.

The 2 Ways to Fund an IRA

1. Rollover

Funds can be withdrawn from one retirement plan and contributed to another IRA within 60 days of the initial withdrawal. The transaction is 100% tax-free and penalty-free. Funds are sent from an old retirement plan directly to the individual account holder, and they are responsible for contributing it to their new IRA within 60 days to avoid paying taxes. This is the most commonly used method for people with employer-sponsored retirement plans (401k, 403b, 457b). Generally, this can only be done one time per year, per account.

2. Trustee to Trustee (Direct Transfer)

The individual account holder instructs that money be transferred directly from their current IRA trustee into a new IRA account. Money moves from one company (trustee) to another company (trustee) without the account holder having to take receipt of funds at any time. This type of transfer is 100% tax-free, IRS penalty-free, and has no restrictions on how many transfers possible.

Transfers or rollovers must be made from “like plan” to “like plan.” Pre-tax accounts get transferred into pre-tax accounts (Traditional and SEP accounts are interchangeable since they are both pre-tax), and post-tax accounts get transferred into post-tax accounts (only transfer Roth account into Roth account).

Withdrawing Money from an IRA

1. Withdrawing at Any Time

Money can be withdrawn from an IRA at any time – however, if a withdrawal is made prior to reaching age 59 ½, a 10% Federal penalty applies.

2. Indirect Rollovers

Indirect rollovers are a tax-free, penalty-free withdrawal if completed within 60 days.​

Types of Individual Retirement Accounts

Traditional IRA

A traditional IRA allows the individual investors to contribute pre-tax income toward investments that can grow tax-deferred (no capital gains/dividend income is taxed). The account owner is allowed to contribute up to $5,500-$6,500 depending on the taxpayer’s age, income, tax-filing status, and other factors. Contributions are tax-deductible. Money is taxed upon withdrawal. The account owner may withdraw funds at any time – however, if you are younger than 59 ½ years old, a Federal penalty will apply.

Roth IRA

A Roth IRA permits the account owner to contribute post-tax income toward investments that grow on a tax-deferred basis. The account owner is allowed to contribute up to $5,500-$6,500 depending on the taxpayer’s income, tax-filing status, and other factors. Contributions are NOT tax-deductible. Since money is taxed PRIOR to being contributed to the Roth account, it does NOT get taxed upon withdrawal. A Roth IRA is completely free of withdrawal penalties, as long as the account owner is over 59 ½ years old. If funds are withdrawn before they reach age 59 ½ and the Roth account is less than 5 years vested, Federal penalty applies.

Simplified Employee Pension (SEP)

A Simplified Employee Pension (SEP) retirement plan is a retirement plan that an employer, or self-employed individual can establish for themselves and their employees. Contributions are tax deductible – very similar in nature to Traditional IRA. The individual establishing the plan must be the owner of the business/President/CEO/self-employed. SEP IRA’s can be transferred or rolled over into a Traditional IRA or a new SEP IRA. In a SEP IRA you are allowed to contribute up to 25% of your income, up to $55,000 per year.

Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)

A Savings Incentive Match Plan for Employees of Small Employers is a retirement plan that may be established by employers/self-employed individual. Contributions are tax-deductible. These accounts can only be transferred to Traditional IRA’s or SIMPLE IRA’s after they have been established for at least 2 years. If the account is less than 2 years old it may not be moved.


A 401k is an employer-sponsored retirement plan for a “for profit” company. 401(k)s are the most common kind of defined contribution retirement plan. These plans can generally only be rolled over if the individual is over 59 ½ years old or separated from service (no longer working for the employer).


A 403b is an employer-sponsored retirement plan for a “non-profit” company. A 403b, generally can only be rolled over if the individual is over 59 ½ years old or separated from service (no longer working for the employer)


If you’re an employee of a city, county, township, park board, water district or similar entity, your employer may offer a tax-exempt savings benefit known as a government 457(b) deferred compensation plan. This retirement plan allows employees to make pre-tax salary deferrals. An advantage of the 457(b) plan is that it is not subject to the IRS age 59 ½ rule and there is no 10% penalty for withdrawing your funds before that age, although the withdrawal is subject to ordinary income taxation.

Tax-Sheltered Annuity (TSA)

Commonly found in many 403b plans, tax-sheltered annuities allow an employee to make contributions from his or her income into a retirement plan. The contributions are deducted from the employee’s income and, as a result, the contributions and related benefits are not taxed until the employee withdraws them from the plan. Because the employer can also make direct contributions to the plan, the employee gains the benefit of having additional tax-free funds accruing.

Thrift Savings Plan (TSP)

A Thrift Savings Plan (TSP) is a retirement plan for Federal government employees. Employees are either “civilian” or “uniformed.” Employees must be either 59 ½ years old and/or separated from service from Federal Government in order to rollover funds. TSPs have their own set of forms to be used for any rollovers.

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