BLACK FAMILY WEALTH MATTERS: Click here to learn how we are working to support you.
PROTEJA SU HOGAR Y SU FAMILIA - Se Habla Espanol. Haga clic aquí!
  • Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Home
  • Our Firm
    • About Our Firm
    • Areas We Serve
      • Los Angeles County
        • Inglewood
        • Malibu
        • Santa Monica
        • Torrance
        • Venice
    • Pre Consultation Form
    • Attorney and Staff Profiles
      • Attorney Caprice Collins
      • Attorney Lioness Ebbay
    • Awards & Recognition
    • Giving Back
    • Our Reviews
    • Speaker Connection
    • Staff Events
  • Services
    • Asset & Business Planning
    • Estate And Gift Tax Figures
    • Estate Planning Services
    • Family-Owned Businesses
    • Financial Planning Assistance
    • Incapacity Planning
    • IRA & Retirement Planning
    • Legacy Planning Services
    • LGBTQ Estate Planning
    • Medi-Cal and Elder Law
    • Pet Planning
    • SECURE Act
    • Special Needs Planning
    • Trust Administration & Probate
      • Trust Administration & Probate Definitions
  • EVENTS
  • Resources
    • Elder Law
      • Ladera Heights Elder Law
      • Los Angeles County Elder Law
      • Elder Law & Medicaid Definitions
      • Elder Law Reports
      • Medi-Cal Planning Checklist
    • Estate Planning
      • Estate Planning Checkup
      • Estate Planning Reports
        • Advanced Estate Planning
        • Basic Estate Planning
        • Estate Planning For Niches
        • Trust Administration
      • Estate Planning Definitions
      • Estate and Gift Tax Figures
      • Incapacity Planning Definitions
      • Is Your Estate Plan Outdated?
      • Top 10 Estate and Legacy Planning Techniques
    • Free Estate Planning Worksheet
    • Free Seminars
    • Frequently Asked Questions
      • Business Succession Planning
      • Elder Law
        • Medi-Cal
        • Nursing Home Planning
        • Understanding Dementia
      • Estate Planning
        • Charitable Gifting
        • Estate Planning for Women
        • Frequently Asked Questions for Families Without an Estate Plan
        • LGBTQ Estate Planning
      • Financial Planning
        • Tax Planning in Your Estate Plan
      • Incapacity Planning
        • Veteran’s Benefits
      • Legacy Wealth Planning
      • Pet Planning
      • Power of Attorney
      • Probate
        • Serving as Executor
        • Small Estate Administration
      • Trust Administration & Probate
      • Trusts
        • Living Trusts
      • Understanding Estate Taxes and How They Impact Your Estate Plan
    • Legacy Wealth Planning Pre-Consultation Form
    • Newsletters
    • Probate and Trust Administration
      • Bereavement Resources
      • How to Know if You Need Extra Help With Your Grieving
      • Loss of a Loved One
      • The Mourner’s Bill of Rights
      • Things You Need To Do When a Loved One Passes Away With a Trust
      • Things You Need To Do When a Loved One Passes Away With a Will
      • Trust Administration & Probate Definitions
    • Published Books
    • The Ultimate Caregiver Guide
    • Caregiver’s Worksheets and Checklists
  • Videos
  • Reviews
    • Our Reviews
    • Review Us
  • Women’s Planning
    • A Guide to Estate Planning for Women
    • Frequently Asked Questions
  • Trust Administration
  • Blog
  • Contact Us

Collins Law Group

Los Angeles Estate Planning Attorney

powered by BirdEye

Connect with us today(310) 677-9787

Attend a FREE Event
  • Facebook
  • Twitter
  • Linkdin
  • Youtube
  • Instagram
  • Pinterest
x

How to Protect Your Family In Case of Your Illness or Death

During our webinar, we discuss family home protection, avoiding nursing home poverty, preventing family feuds, protecting your kids' inheritance, and how you can keep the government out of your affairs.

Watch our webinar now
Home » Retirement Planning » Which Type of IRA Is Right for Me?

Which Type of IRA Is Right for Me?

May 30, 2017Retirement Planning

iraIn the 21st century, retirement planning is much more complicated than it was just a couple of generations ago. Gone are the days when you could rely on an employer sponsored pension and a healthy social security retirement benefit to provide you with a comfortable retirement. Instead, most people are now forced to develop and fund their own retirement plan. One common funding option for the average retirement plan is an Individual Retirement Account, or IRA. If you are considering the addition of an IRA to your retirement plan, the first thing you need to decide is which type of IRA is right for you.

What Is an IRA?

An Individual Retirement Account (IRA) is essentially exactly what it sounds like. It allows individuals to direct pretax income towards investments that can grow tax-deferred; no capital gains or dividend income is taxed until it is withdrawn. Contributions to an IRA may be invested in many types of securities such as stocks, bonds, money market accounts, and CDs. In essence, an IRA is like a pension that you establish and fund yourself.

Why Are IRAs So Popular?

As employer sponsored pensions became less and less common, and social security retirement benefits failed to keep up with the cost of living, people began to look for better options. As the concept of lifetime employment was replaced by “job-hopping”, the pensions that were once standard with lifetime employment could no longer be counted on to fund retirement. The Social Security retirement system was once intended to provide workers with enough of a benefit each month to live on, albeit not extravagantly. In 2016, however, the average Social Security retirement benefit was $1,348 – an amount that does not come close to providing sufficient income for a retiree to pay his/her basic monthly expenses. Toward the end of the 20th century, as workers began to realize that neither a pension nor Social Security benefits were going to provide sufficient income to retire on, they started looking for ways to fund their own retirement. An IRA was the perfect solution for many people.

What Are the Different Types of IRAs?

As IRAs grew in popularity, they also evolved. Today, there are several different types of IRAs. The most commonly used types of IRAs include:

Traditional IRA – this is the “original” IRA and is what most people think of when IRAs are discussed or mentioned. This type of IRA remains the best option if your income disqualifies you for a Roth IRA. Important points about a traditional IRA include:

    • Annual tax deductible contributions are based on income level.
    • Withdrawals can begin at age 59½ and are mandatory by age 70½.
    • Taxes are paid on earnings when withdrawn from the IRA.
    • Anyone with earned income under age 70½ can contribute up to the annual maximum limit.  
    • Funds withdrawn before age 59½ are subject to a 10 percent penalty unless an exception applies.
    • Traditional IRAs may be converted to Roth IRAs by paying income taxes (but no tax penalties) on the IRA distribution before rolling over to a Roth IRA, regardless of income limits.

Roth IRA – a Roth IRA is fundamentally the same as a traditional IRA; however, there are some attractive tax benefits to using a Roth IRA if you qualify to do so. Important points about a Roth IRA include:

    • Annual contributions are not tax deductible, but eligibility depends on income level.
    • Mandatory distributions at age 70½ are not required.
    • All earnings and principal are 100% tax free as long as you follow the IRS rules.
    • Traditional, SIMPLE and SEP IRAs may all be converted to Roth IRAs by paying income taxes (but no tax penalties) on the IRA distribution before rolling over to a Roth IRA, regardless of income limits.
    • Eligibility is determined based on income
    • Principal contributions can be withdrawn any time without penalty as long as the required 5-year holding period is met.

SEP IRA – Simplified Employee Plan – this type of IRA is similar to a traditional pension in that the employer actually establishes the plan and makes the contributions. Points about a SEP IRA include:

    • Established by an employer
    • Allows the employer to make deductible contributions to a Traditional IRA for participating employees
    • Employer decides how much to contribute, up to 25 percent of income (dollar limits also apply)
    • Contribution percentages must be the same for all employees
    • Employer decides whether to contribute each year; however, if the employer makes a contribution, even to his/her own account, contributions must be made to all accounts.
    • Good for small family businesses

SIMPLE IRA – (Savings Incentive Match Plan for Employees) – also similar to a pension’ however, in this type of IRA both the employer and the employee can contribute.

    • Designed for small businesses with 100 employees or less
    • Allows employees to make salary-reduced contributions and receive matching contributions from their employer.
    • Similar to a SEP IRA; however, contributions may be made by both the employer and the employee.
    • Employer is required to match the employee’s contribution up to three percent.

Contact Us

If you have additional questions or concerns about which type of IRA is right for you, contact theCollins Law Firm by calling (310) 677-9787 to reserve for a Free Estate Planning Workshop.

  • Author
  • Recent Posts
Caprice Collins
Caprice Collins
Attorney Caprice L. Collins is a top rated Harvard Law School graduate. She has 34 years of legal experience with a successful law practice devoted exclusively to Estate/Business Planning and Trust Administration. Attorney Collins is a well-respected keynote speaker on Wills, Living Trusts, Estate Planning, Business Planning and Trust Administration. She has appeared on California’s Real Estate Radio Station KTLK AM 1150 as a legal expert on Estate Planning and Living Trusts among many other notable media appearances.
Caprice Collins
Latest posts by Caprice Collins (see all)
  • Why Do We Need Estate Plans If We Do Not Plan to Have Children? - March 20, 2023
  • Using an Incentive Trust to Encourage a Beneficiary to Make Good Use of an Inheritance - March 17, 2023
  • How to Incorporate Asset Protection Strategies into Your Estate Plan - March 13, 2023

Other Articles You May Find Useful

Baldwin Hills elder law attorney
Early Retirement May Be Costing You a Fortune
Retirement planning
Retirement Planning — How Much Do I Need to Save?
Financial security
What Can I Do to Ensure My Financial Security During My Golden Years?

Primary Sidebar

Collins Law Group

Blog Subscription

Sign up to our blog to receive the latest estate planning news and updates!

  • This field is for validation purposes and should be left unchanged.

Our Attorneys

Attorney Caprice Collins

Get to Know Attorney Caprice Collins


Attorney Lioness Ebbay

Get to Know Attorney Lioness Ebbay

Follow Us

  • Facebook
  • Twitter
  • Linkdin
  • Youtube
  • Instagram
  • Pinterest

Testimonials

Client Review
August 19, 2020
    

“My mother told me about the Collins Law Group and I must say, the entire experience has been a real pleasure. Although I was nervous at first, the Collins Law Group staff put me at ease with their friendliness and knowledge. I didn’t realize how hard it could be on your family and loved ones left behind if you die without any planning or directions in place for them. My biggest concern was making sure my elderly mother would be provided for and taken care of if something happened to me. I have been a caregiver for her for 12 years, so this planning was crucially important. I had previously made a living trust for myself on Legal Zoom but there is no comparison to the level of service and professionalism that Collins Law Group embodies. Attorney Collins and her staff provides excellent service and it will take a large burden off of my family when they need guidance at the time of my passing.”

default image
-Ms. Jones

Where We Are

Collins Law Group
3330 West Manchester Boulevard
Inglewood, CA 90305
Phone: (310) 677-9787
Fax: (310) 677-6742
Email: clcfirm@aol.com

See Larger Map Get Directions

Office Hours

Monday9:00 AM - 5:00 PM
Tuesday9:00 AM - 5:00 PM
Wednesday9:00 AM - 5:00 PM
Thursday9:00 AM - 5:00 PM
Friday9:00 AM - 5:00 PM

Map

Collins Law Group Google Map

Footer

  • About Our Firm
  • Advantages of Working With Our Firm
  • Services
  • Sitemap
  • Resources
  • Blog
  • Contact Us

Connect with Us

  • Facebook
  • Twitter
  • Linkdin
  • Youtube
  • Instagram
  • Pinterest
Collins Law Group footer logo

Attorney Advertisement

© 2023 American Academy of Estate Planning Attorneys, Inc.