Many taxpayers may have heard of Individual Retirement Arrangements, or IRAs, but some don’t know how IRAs help them save for retirement. People can set up an IRA with a bank or other financial institution, a life insurance company, mutual fund or stockbroker. Here’s a list of basic terms to help people better understand their IRA options. • Contribution. The money that someone puts into their IRA. There are annual limits to contributions depending on their age and the type of IRA. • Distribution. The amount that someone withdraws from their IRA. • Required distribution. There are requirements for withdrawing from an IRA: o Someone generally must start taking withdrawals from their IRA when they reach age 70½. o Per the 2019 SECURE Act, if a person’s 70th birthday is on or after July 1, 2019, they do not have to take withdrawals until age 72. o Special distribution rules apply for IRA beneficiaries. • Traditional IRA. An IRA where contributions may be tax-deductible. Generally, the amounts in a traditional IRA are not taxed until they are withdrawn. • Roth IRA. This type of IRA that is subject to the same rules as a traditional IRA but with certain exceptions: o A taxpayer cannot deduct contributions to a Roth IRA. o For some situations, qualified distributions are tax-free. o Roth IRAs do not require withdrawals until after the death of the owner. • Savings Incentive Match Plan for Employees. This is commonly known as a SIMPLE IRA. Employees and employers may contribute to traditional IRAs set up for employees. It may work well as a start-up retirement savings plan for small employers. • Simplified Employee Pension. This is known as a SEP-IRA. An employer can make contributions toward their own retirement and their employees’ retirement. The employee owns and controls a SEP. • Rollover IRA. This is when the IRA owner receives a payment from their retirement plan and deposits it into a different IRA within 60 days. Share this tip on social media