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The US government sponsors retirement programs. The program is known as an individual retirement account or IRA. IRA accounts are self-directed, self-defined, and tax-deferred. You can establish these accounts without help or assistance from an employer. Your potential selection of financial vehicles is also not limited to your employer’s account provider or preferences, giving you a wider selection than employer-sponsored accounts. To open an IRA simply approach any major financial services provider.

Your Individual Retirement Account is funded with pre-tax contributions which reduce your taxable income. Over the course of your life, the balance of your IRA increases with contributions and investment returns. At retirement, you’ll receive a regular distribution until you’ve emptied the account or died. These distributions will be taxed your normal income tax rates. You can begin withdrawing funds penalty free at age 59½. Before that age, you will pay a 10% tax penalty for withdrawals on top of your income tax rate. At 70½ you are required to begin distributions.

Since these accounts are tax deferred, it is wise to select heavily taxed performance investments for your account. Investments which have are lightly taxed or tax-deferred waste space in an IRA.

Restrictions

IRA accounts are restricted. In order to own an account, you need to be under the age of 70. To contribute to your IRA, you need to have earned income during the tax year. You can’t contribute to an IRA if you’re contributing to an employer-sponsored 401k account.

The tax deductible status of your contributions is primarily determined by your income. Your marital situation changes the deductibility of your IRA contributions.

During 2013, if you have a retirement plan offered at your workplace, a single person or head of household can make full deductions if they earn under $59,000 a year. They can make partial deductions between $59,000 and $69,000, and no deductions afterward. A qualified widow can make full deductions up to $90,000, partial deductions between $95,000 and $115,000, and no deductions after. A married couple filing jointly can make full deductions up to $95,000, partial deductions between $95,000 and $115,000, and no deductions after. A married couple filing separately can make a partial deduction up to $10,000 and no deductions after. If you are married and have an IRA, it’s highly advised you file taxes jointly.

If you do not have a retirement plan offered at work, you can make full deductions if you are single. If your spouse has a retirement plan offered at their workplace, deduction limits apply for different amounts. In this case, if you are married and filing jointly you can claim a full deduction up to $178,000. You can claim a partial deduction between $178,000 and $188,000 and no deductions after. If you are married filing separately you can claim deductions up to $10,000 in income. If your spouse does not have a retirement plan, you can make full contribution deductions.

Contribution Limits

You should note that your contributions are also limited. In 2013 the maximum financial contribution you can deposit in your account is $5,500. This number changes if you are over 50 years of age. In this case, you can donate an additional $1,000 for a total of $6,500. These rates will change over time with the rate of inflation. These rates are extremely low compared to employer-sponsored vehicles. Employer 403b, 457, and 401k all allow workers to deposit up to $17,500 in 2013. All of those programs allow an additional $5,500 if you’re over 50 years of age.

IRA Beneficiaries

You might die before your IRA is empty. In this case, your assets will be inherited by your beneficiary. Note that your beneficiary is not designated by your will. You must entitle your beneficiary in the IRA’s forms. If you want to change who inherits your IRA fund, you must update the beneficiary. No other document will impact who receives your 403b fund in the case of your death. If your beneficiary is younger than 18 you will need to assign them a custodian until they come of age.

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