Individual Retirement Accounts, also known as IRAs, are a type of retirement planning option available in the United States that allows qualified individuals to set aside a maximum amount of income annually, for the express purpose of putting aside funds for the retirement years. There are several different kinds of IRA accounts that may be established, including Roth, Traditional, and Simple IRAs. In comparison to many other strategies used to save for retirement, IRA qualifications are relatively few, making it possible for just about anyone employed in the work force to open and contribute up to a certain amount each year.
One of the basic IRA qualifications has to do with the revenue stream of the account holder. Anyone who has some sort of income source that is subject to taxation can open this type of account and contribute up to a certain amount annually. One important provision is that the account holder must not be more than the age of 70.5 years at the end of the calendar year in which the account was established. In terms of minimum age requirements, as long as the individual is considered of legal age to open financial accounts and has a source of income that is taxable, it is possible to open an account of this type.
One important exception to the age conditions found in the basic IRA qualifications is that if the funds are being transferred from some other type of qualifying retirement plan, even a different type of IRA, the maximum age requirement does not generally apply. Before making assumptions about the ability to transfer the funds into the new IRA, checking with financial professionals will make it easier to determine if any new regulations have come into play that could impact this type of transaction. The financial professional can also evaluate the type of retirement fund involved and determine if the transfer qualities under current regulations.
Determining the nature of the type of compensation that is eligible for contributions to the plan is also part of IRA qualifications. For people who are employees of a firm or business, the wages and salary resulting from that employment is considered eligible compensation. In like manner, any funds received as part of a commission plan or bonuses issued to the employee by the employer may also be diverted to the IRA. Anyone who is self-employed may use their net earnings as the basis for calculating the amount that can be contributed to the plan each calendar year, allowing for matters such as contributions made to other types of retirement accounts and a percentage of the self-employment taxes that are assessed on the revenue generated by the taxpayer.
IRA qualifications may also omit certain types of income from eligibility, depending on the type of IRA involved. For example, there are some restrictions on the types of income that may be used to fund a Traditional IRA, including the income earned from interest and dividends, or income that is generated from some sort of rental arrangement. Professionals at the institution where the IRA is established can help clients understand what types of income may be considered ineligible compensation for the type of account under consideration.
One of the key IRA qualifications has to do with using only an authorized institution to open an individual retirement account. Typically, this involves verifying that the institution has approval from the Internal Revenue Service to offer this type of account to the general public. A wide range of financial institutions do have this type of approval, subject to review from time to time, ensuring that those institutions remain in compliance with governmental regulations. Institutions like savings and loan associations, banks, credit unions that are federally insured, and brokerage houses are all likely to have proper authorization to open one or more types of IRA accounts for their clients.
