I have questions on IRA's...?

Question

Who can tell me what a simple IRA is? My boss says that I am elligble for one and she wants me to take advantage of it now because she's also giving me a pay raise and she says that now is a good time to do it. She said that what ever I take out that the company will match up to 3%. Is this a good idea? I'm not so good with numbers and taxes and things like that. I need some advice on this in simpler terms. Thanks...

Answer 1

A simple IRA allows you to set aside money for your retirement. You can invest in anything you want, liek stocks, bonds or mutual funds. You get a tax deduction when you put the money in. If the company matches up to 3%, that means that if you make $20,000 and you put some into an IRA, the company will match 3% x $20,000, or the first $600. So, you put in $600 and they will give you $600. However, you can put in up to $4,000. There's also a special tax advantage if you don't make much money, I think the government gives you a tax credit for savings, too.

If you don't really need the tax deduction, you're better off with a Roth IRA. They tax the money when it goes in, but not when you take it out when you retire. Also, after five years you can take out any money you put in, except for the interest, and you can take out up to $10,00 to buy a house, so it's a better account.

I assume you're young. You can double your money many times over before you retire. Let's say you can make 8% on your money. In nine years, you'll have double! So, If you put in $1,000 this year, and you're 24 years old, and the company puts in another $600, and you make 8% interest, that $1,600 will become $25,600 by the time you're 60! It's called the Rule of 72 and it's amazing.

Your boss is right -- set aside the money.

Answer 2

SIMPLE IRA can only be setup by an employer. Its similar to a 401k plan except that only small companies that has less than 100 employees can setup a SIMPLE IRA. Plus there's strict rules that the employer must follow (but you don't have to worry about those since you are only the employee).

You may choose to make contributions to your SIMPLE IRA or not. Whatever you contribute (up to $10,500 for year 2007), your employer will match your contributions of only 3% of your income. For example, lets say your income for 2007 is $10,000. You put in $2000, but your employer can only put in 3% of your income, which is $300. If you don't contribute, the employer won't contribute either.

On some years, the employer may decide not to make the 3% matching contribution, but take the 2% non-elective contribution. This means, the employer will contribute only 2% of your income to a salary cap limit of $225,000. Whether you contribute or not, the employer will contribute 2% of your income. So, if you made $10,000 in 2007, the employer will put in $200 into your SIMPLE IRA, whether you contributed or not.

So, if you don't have a retirement plan at work, its a good idea to have a SIMPLE IRA.

For more information, go here: http://obe231.blogspot.com/2006/12/other-iras.html

Answer 3

An IRA is a tax-deferred retirement account for individuals that permits them to set aside money each year, with earnings tax-deferred until withdrawals begin at age 59 1/2 or later (or earlier, with a 10% penalty). The exact amount depends on the year and your age. IRAs can be established at a bank/custodian, mutual fund, or brokerage. Only those who do not participate in a pension plan at work or who do participate and meet certain income guidelines can make deductible contributions to an IRA. All others can make contributions to an IRA on a non-deductible basis. Such contributions qualify as a deduction against income earned in that year and interest accumulates tax-deferred until the funds are withdrawn. No matter how young you are, an IRA can be a great retirement tool. Good luck.

Answer 4

I am also lookign into an IRA as well and what the others have not mentioned is that in 2010 whatever is in your IRA can be converted over to a roth ira. Still looking into full details of this.

Any matching is always a plus. go for it.

Answer 5

SIMPLE stands for Savings Incentive Match Plan for Employees.

If you participate, your contributions will come directly out of your paycheck. You will not pay income taxes on your contribution until you take withdrawals when you retire. It is a good idea to contribute enough to get the match, since that is "free money."

Answer 6

IRA's are wonderful though it would be unusual for your employer to give you one. Employers can set up other types of accounts like 401K. These are very similar and both are good--espescially if the employer matches some of yours.