6MUJNBUF HVJEF UP SFUJSFNFOU · 6mujnbuf hvjef up sfujsfnfou 8bmm 4usffu .fubmt --$ ] &btu .bjo...

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Transcript of 6MUJNBUF HVJEF UP SFUJSFNFOU · 6mujnbuf hvjef up sfujsfnfou 8bmm 4usffu .fubmt --$ ] &btu .bjo...

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Ultimate guide to retirementWall Street Metals, LLC | 900 East Main Street, Grass Valley, CA 95945 | 1-800-632-4154

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IRAs

Basics

BasicsTraditional IRAsRoth IRAsSEP IRAsSIMPLE IRAs

What is an IRA?What's the difference between Roth and traditional IRAs?Why is an IRA a good deal?Who can put money into an IRA?How much should I put into an IRA?When can I access money in my IRA?WWhen are IRA withdrawals penalty-free?When do I have to start taking the money out of an IRA?What if I need the money in my IRA before retirement?How should I invest the money?How do my IRA withdrawals get taxed in retirement?Where should I open an IRA?Should I take money from my IRA to pay off debt

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Traditional IRAsWhat is a traditional IRA?How do deductible and nondeductible IRAs differ?Who can contribute to a traditional IRA?When can I take money out of a traditional IRA?When do I have to start withdrawing from a traditional IRA?HHow do I know if a traditional IRA is right for me?

Roth IRAsWhat is a Roth IRA?How is a Roth IRA different from a regular IRA?What are the advantages of the Roth version?Who can contribute to a Roth IRA?When can I take money out of a Roth?When do I have to withdraw money from a Roth?WWhich is better for me, a Roth or traditional IRA?

SEP IRAsWhat is a SEP IRA?Who can contribute to a SEP IRA?How do I know if a SEP IRA is right for me?

SIMPLE IRAsWhat is a SIMPLE IRA?Who can contribute to a SIMPLE IRA?How much can I put into a SIMPLE IRA?How do I know if a SIMPLE IRA is right for me?

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What is an IRA?IRA stands for Individual Retirement Account, and it's basically a savings ac-count with big tax breaks, making it an ideal way to sock away cash for your re-tirement. A lot of people mistakenly think an IRA itself is an investment - but it's just the basket in which you keep stocks, bonds, mutual funds and other assets.Unlike 401(k)s, which are accounts provided by your company, the most common types of IRAs are accounts that you open on your own. Others can be opened by self-employed individuals and small business owners. There are sev-eral different types of IRAs, including traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs.

Unfortunately, not everyone gets to take advantage of them. Each has eligibili-ty restrictions based on your income or employment status. And all have caps on how much you can contribute each year and penalties in most cases for yanking out money before the designated retirement age.

Basics

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What's the difference between Roth and traditional IRAs?The main difference is when you pay income taxes on the money you put in the plans. With a traditional IRA, you pay the taxes on the back end - that is, when you withdraw the money in retirement. But, in some cases, you may escape taxes on the front end - when you put the money into the account.

With a Roth IRA, it's the exact opposite. You pay the taxes on the front end, but there are no taxes on the back end.

AAnd remember, in both traditional and Roth IRAs, your money grows tax free while it's in the account.

There are other differences too. While almost anyone with earned income can contribute to a traditional IRA, there are income limits for contributing to a Roth IRA. So not everyone can take advantage of them.Roth IRAs are more exible if you need to withdraw some of the money early.WWith a Roth IRA, you can leave the money in for as long as you want, letting it grow and grow as you get older and older. With a traditional IRA, by contrast, you must start withdrawing the money by the time you reach age 70½.

Why is an IRA a good deal?Because money in the plan grows free from the clutches of Uncle Sam. That is, the income from interest, dividends and capital gains can compound each year without taxes nipping away at it.

In addition, you also can escape taxes on either the money you put into the plan initially or on the money you withdraw in retirement, depending upon whether you choose a traditional or Roth IRA.

SSo what's the catch? The government limits the amount of money you can put into an IRA each year. Most people under 50 can contribute no more than $5,500 a year; that limit rises if you're older. For more details, see How much should I put into an IRA?.

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Who can put money into an IRA?It depends on what kind of IRA it is. Almost anyone can contribute to a tradi-tional IRA, provided you (or your spouse) receive taxable income and you are under age 70 ½. But your contributions are tax deductible only if you meet cer-tain qualications. For more on those qualications see Who can contribute to a traditional IRA?

Roth IRA contributions are never tax deductible, and you must meet certain income requirements in order to make contributions. For 2016, your modied adjusted gross income must be $184,000 or less if you are married ling jointly; $117,000 or less if you are single, head of household, or married ling separate-ly (and didn’t live with your spouse at any point during the year). Those who make slightly above these limits may still be able to make partial contributions. For more see Who can contribute to a Roth IRA?

SIMPLE and SEP IRAs are for self-employed individuals or small business owners. To set up a SIMPLE IRA an employer must have 100 or fewer employees earning more than $5,000 each. And the employer cannot have any other re-tirement plan besides the SIMPLE IRA. Any business owner or individual with freelance income can open a SEP IRA.

How much should I put into an IRA?The amount you should save depends on your overall nancial plan, but you should aim to put as much in an IRA as the government allows you to. That's be-cause the more you save in a tax-favored account, the more tax-protected gains you can rack up.If you're younger than 50, your 2016 contributions to a traditional IRA or a Roth IRA are limited to $5,500 or the total of your taxable compensation, whichever is smaller. If you're 50 or over before the end of the year, you're allowed to con-tribute up to an additional $1,000 for a total yearly contribution of $6,500; this is the IRS's way of encouraging you to save more in the nal years before retirement.

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However, the amount you can contribute to a Roth IRA also depends on your income. To make the full contribution in 2016, your modied adjusted gross income must be less than $117,000 if you're single, or $184,000 as a married couple ling jointly. If you earn slightly above those amounts, you may be able to make smaller contributions.

When can I access money in my IRA?You can take money out of an IRA whenever you want, but be warned: if you're under age 59 ½, it could cost you. That's because the government wants to dis-courage you from raiding your IRA until you're retired. (It's a retirement ac-count, after all.)

If you are under 59 ½: If you withdraw any money from a traditional IRA, you'll be slapped with a 10% penalty on the amount you withdraw. That's in addition to the regular income tax you'll owe on your withdrawal. Bad idea.Roth IRAs offer a bit more exibility. Generally, you may withdraw your contri-butions to a Roth penalty-free at any time for any reason, as long as you don't withdraw any earnings on your investments (as opposed to the amount you put in) or dollars converted from a traditional IRA before age 59 ½. In that case, you'll get hit with that same 10% penalty. Not sure which money is considered a contribution and which is considered earnings? The IRS views withdrawals from a Roth IRA in the following order: your contributions, money converted frfrom traditional IRAs and then earnings. So if you take out more than you've contributed in total, then you're starting to dip into conversion dollars or earn-ings, and will be penalized and taxed accordingly.

If you're 59 ½ or older: You can usually make penalty-free withdrawals (known as "qualied distributions") from any IRA. But you'll still owe the income tax if it's a traditional IRA. To make qualied distributions from a Roth IRA, you must be at least 59½ and it must be at least ve years since you rst began contribut-ing. And if you converted a regular IRA to a Roth IRA, you can't take out the money penalty-free until at least ve years after the conversion.Just to make it more confusing, there are several exceptions to these rulethese rules.

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When are IRA withdrawals penalty-free?If you're 59 ½ or older you're usually all clear. But if you're younger than that, you will get hit with a penalty for early withdrawals from traditional IRAs, or early withdrawals on earnings from Roth IRAs.

But you can escape that 10% tax penalty if you're withdrawing the money for a few specic reasons.

These include:

Also, if you put money into your IRA but then decide you need it back, you can generally "take back" one contribution made to a traditional IRA without paying tax, as long as you do it before the tax ling deadline of that year and do not deduct the contribution from your taxes.

YYou can also withdraw money from a traditional IRA and avoid paying the 10% penalty if you roll the money over into another qualied retirement account (such as a Roth IRA) within 60 days. But then you wouldn't actually be able to spend it.

AAre you really that desperate for cash? Well, if so, it is possible to take money out of your traditional IRA in what's called "substantially equal periodic pay-ments." Here's how it works: The IRS will determine what amount you can re-ceive each year based on your life expectancy. That's the amount you must withdraw each year.

• Paying college expenses for you, your spouse, your children or grandchildren.

• Paying medical expenses greater than 7.5% of your adjusted gross income if you’re age 65 or older. The threshold is 10% for those under age 65.

• Paying for a rst-time home purchase (up to $10,000).

• Paying for the costs of a sudden disability.

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When do I have to start taking the money out of an IRA?

Sound too good to be true? The method is certainly not without risks. Once you start substantially equal periodic payments, you can't stop the withdrawals until you're 59½ or ve years have passed, whichever is longer. So there's no changing your mind. If you change or stop these withdrawals at any time, you'll get hit with that 10% penalty - applied retroactively from the time you rst began receiving payments, with interest. So it's generally not a great idea if you're under 50. Even if you are over 50, you'll be eating away at your retire-mement nest egg, rather than building it up. That means you're likely to come up short when you actually do retire.

If you have a traditional IRA, you must take required minimum distributions starting in the year you turn 70 ½. The amount of the distribution depends on how much you have saved in the account and on your life expectancy, accord-ing to tables published by the IRS. If you own a Roth, you can leave the money in for as long as you want.

What if I need the money in my IRA before retirement?If you withdraw money from a traditional IRA before you turn 59 ½, you must pay a 10% tax penalty (with a few exceptions). The same rule applies if you withdraw investment earnings from a Roth IRA. The exceptions involve cases in which you use the withdrawal to pay for college expenses, to buy your rst home (up to $10,000) or for medical expenses greater than 7.5% of your AGI (adjusted gross income) after age 65 or 10% if you’re under age 65, or in case of disability. For more, see Can I take money from my IRA without penalty?

How should I invest the money?The IRS dictates a few ways in which you can't use the money in your IRA, in-cluding lending money to yourself, using it as collateral for a loan and buying real estate for your personal use. Beyond those exceptions, you can invest in just about anything: mutual funds, individual stocks and bonds, annuities and even certain real estate.

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It's a good idea to diversify your assets among stocks, bonds and cash. Stocks can provide long-term growth potential, while bonds and cash offer some pro-tection against market setbacks. The allocation that's right for you comes down to how long you'll have your money invested and what sort of short-term ups and downs you're willing to accept in the value of your portfolio. The longer your investment horizon, the more it makes sense to invest in stocks. But if you can't stomach occasional market downturns, you might want to hold a larger shashare of bonds.

For more on asset allocation, see What's the best way to divide my retirement investments? And for instant advice on how to divvy up your portfolio among different types of

stocks and bonds, depending on your particular time horizon and risk toler-ance, go to our Asset Allocation tool

How do my IRA withdrawals get taxed in retirement?Your withdrawals from a Roth IRA are tax free as long as you are 59 ½ or older and your account is at least ve years old. Withdrawals from traditional IRAs are taxed as regular income, based on your tax bracket for the year in which you make the withdrawal.

Where should I open an IRA?You can open an IRA through almost any large nancial institution, including banks, mutual fund companies and brokerage rms. Most IRA providers offer a broad variety of investment options, ranging from CDs to money market funds to mutual funds to individual stocks and bonds, so you can put together a di-versied retirement portfolio within your IRA no matter which one you choose.The major difference between most institutions is the fee structure. So make sure to carefully compare fees before choosing where to open your IRA. A no-load mutual fund family such as Fidelity, T. Rowe Price or Vanguard can often be a good way to go.

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Should I take money from my IRA to pay off debtTaking withdrawals from an IRA before you're retired is something you should do only as a last resort. There are a few reasons why.

If you withdraw money from a traditional IRA before you turn 59 ½, you must pay a 10% tax penalty (with a few exceptions), in addition to regular income taxes. Plus, the IRA withdrawal would be taxed as regular income, and could possibly propel you into a higher tax bracket, costing you even more.TThough the feds allow you to withdraw contributions from a Roth IRA without incurring a penalty, you will owe a penalty (and taxes) if you withdraw the earn-ings on those contributions.

In addition, money you take out of an IRA cannot be replaced, since you would still be restricted to yearly contribution limits for future contributions. So even if you withdraw only a small amount, factor in the years of compounding interest you would be forgoing, and that small withdrawal could end up costing you a small fortune in your golden years.

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Traditional IRAs

What is a traditional IRA?A traditional IRA is a tax-deferred retirement savings account. You pay taxes on your money only when you make withdrawals in retirement. Deferring taxes means all of your dividends, interest payments and capital gains can com-pound each year without being hindered by taxes - allowing an IRA to grow much faster than a taxable account.

Traditional IRAs come in two varieties: deductible and nondeductible. Whether you qualify for a full or partial tax deduction depends mostly on your income and whether you have access to a work-related retirement account like a 401(k).

How do deductible and nondeductible IRAs differ?A deductible IRA can lower your tax bill by allowing you to deduct your contri-butions on your tax return - you essentially get a refund on the taxes you paid earlier in the year.

You fund a nondeductible IRA with after-tax dollars. You cannot deduct contri-butions on your tax return.

Obviously, a deductible IRA is a better deal. But whether you qualify for one de-pends on your income, ling status, whether you have access to an employ-ee-sponsored retirement plan at work and whether you receive Social Security benets. For more see Who can contribute to a traditional IRA

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Who can contribute to a traditional IRA?If you (or your spouse) earn taxable income and are under age 70 ½, you can contribute. It's as easy as that.

However, whether your contributions are tax deductible depends on your income and whether you have access to a work-related retirement account. Here are the guidelines for 2016:

•• If you have no retirement plan at work and you're younger than 70 ½, you can put money in (up to the annual contribution limit) and deduct the entire amount from your taxes. (If your spouse doesn't work outside the home, he or she can also invest up to the federal limit and deduct the full amount.)

• If you do have a 401(k) or other retirement plan at work, your contribution is fully deductible only if your adjusted gross income (AGI) is less than $98,000 for a married couple ling jointly or $61,000 for an individual.

•• If you have a workplace retirement plan, the deduction for your traditional IRA contribution is phased out completely if your AGI is $118,000 or more (married couple ling jointly) or $71,000 or more (individual), or $10,000 for a married person ling separately.

• If you're not covered by a workplace plan but your spouse is, your contribu-tion is fully deductible if your combined income is less than $184,000 and gets phased out at $194,000 or more.

For more on whether to choose a traditional IRA or a Roth IRA, see Which is better for me, a Roth or traditional IRA?

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When can I take money out of a traditional IRA?Whenever you want. But you will pay regular income taxes on the full amount. If you are under age 59½ when you make the withdrawal, you will also be charged a 10% penalty in addition to paying regular income taxes. So making an early withdrawal is almost always a terrible idea.

When do I have to start withdrawing from a traditional IRA?While you can begin making qualied withdrawals from a traditional IRA at age 59½, you must start taking withdrawals that are known as "required minimum distributions" starting in the year you turn 70½. The amount of the distribution depends on how much you have saved in the account and your life expectancy, according to tables published by the IRS.

That's a major difference between a traditional IRA and a Roth IRA. If you own a Roth, you can leave the money in for as long as you want.

How do I know if a traditional IRA is right for me?Start by looking at your income. There are income limits for Roth IRAs, so if your income is above those limits, then it's a no-brainer: a traditional IRA is the only one for you.

If you are eligible for both a Roth and a traditional IRA, then you've got to run some numbers.

IIn general, a traditional deductible IRA is appropriate if you expect to be in a lower income tax bracket when you retire. By deducting your contributions now, you lower your current tax bill. When you retire and start withdrawing money, you'll be in a lower tax bracket, giving less money overall to the tax man.

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If you expect to be in the same or higher tax bracket when you retire, you may instead want to consider contributing to a Roth IRA, which allows you to pay your taxes now.

But it can be difficulBut it can be difficult, if not impossible, to guess what tax bracket you will be in later in life - particularly if you've got a long way to go until you retire. So con-sider spreading your bets. For example, if you already have a tax-deferred 401(k) plan through your employer, you might want to invest in a Roth IRA if you are eligible.

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Roth IRAs

A Roth IRA is a retirement savings account that allows your money to grow tax-free. You fund a Roth with after-tax dollars, meaning you've already paid taxes on the money you put into it. In return for no up-front tax break, your money grows and grows tax free, and when you withdraw at retirement, you pay no taxes. That's right - every penny goes straight in your pocket.There are a few other benets too. For more see How is a Roth IRA different from a regular IRA?

What is a Roth IRA

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The main difference between the two types of IRAs is when you pay taxes on your investments. Traditional IRAs can delay the taxes until retirement, but with Roth IRAs, you pay tax now rather than later.

HeHere's how it works: With a Roth IRA, there is no up-front tax break, but you don't have to pay tax on withdrawals in retirement. That's the opposite of a tra-ditional IRA, which may allow you to deduct at least part of your contributions if you qualify, but requires you to pay income tax on money you withdraw in re-tirement. Both accounts allow investments within them to grow without get-ting clipped by taxes each year.

There are other differences too.

Roth IRAs offer a bit more exibility than traditional IRAs do. You may withdraw your contributions to a Roth IRA penalty-free at any time for any reason (but you'll be penalized for withdrawing any investment earnings before age 59 ½ unless it's for a qualifying reason). If you converted money from a traditional IRA into a Roth IRA, you can't take it out penalty-free until at least ve years after the conversion.

RRoth IRAs also let you leave your money untouched for as long as you like. With a traditional IRA, you must start making withdrawals called "required minimum distributions" after you reach age 70 ½. And while you can no longer make con-tributions to a traditional IRA after you have turned 70 ½, you can keep contrib-uting to a Roth IRA regardless of your age.

How is a Roth IRA different from a regular IRA?

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Roth IRAs offer a bit more exibility than traditional IRAs do. You may withdraw your contributions to a Roth IRA penalty-free at any time for any reason (but you'll be penalized for withdrawing any investment earnings before age 59 ½ unless it's for a qualifying reason). If you converted money from a traditional IRA into a Roth IRA, you can't take it out penalty-free until at least ve years after the conversion.

RRoth IRAs also let you leave your money untouched for as long as you like. With a traditional IRA, you must start making withdrawals called "required minimum distributions" after you reach age 70 ½. And while you can no longer make con-tributions to a traditional IRA after you have turned 70 ½, you can keep contrib-uting to a Roth IRA regardless of your age.

What are the advantages of the Roth version?

Roth IRA contributions are limited by income level. In general, you can contrib-ute to a Roth IRA if you have taxable income and your modied adjusted gross income is either:

• less than $194,000 (phasing out from $184,000) if you are married ling jointly.

• less than $132,000 (phasing out from $117,000) if you are single, head of household, or married ling separately (if you did not live with your spouse at any time during the previous year).

• less than $10,000 if you're married ling separately and you lived with your spouse at any time during the previous year.

For more on whether you should contribute to a Roth or a traditional IRA see Which is better for me, a Roth or traditional IRA?

Who can contribute to a Roth IRA?

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You can take money out of your Roth IRA anytime you want. However, you need to be careful how much you withdraw or you may get stuck with a penalty. In order to make "qualied distributions" in retirement, you must be at least 59½ years old, and at least ve years must have passed since you rst began contrib-uting.

YYou may withdraw your contributions to a Roth IRA penalty-free at any time for any reason, but you'll be penalized for withdrawing any investment earnings before age 59 ½, unless it's for a qualifying reason. Money that was converted into a Roth IRA cannot be taken out penalty-free until at least ve years after the conversion.

Not suNot sure whether the money will be counted as contributions or earnings? Well, the IRS views withdrawals from a Roth IRA in the following order: your contri-butions, money converted from traditional IRAs and nally, investment earn-ings. For example, let's say your IRA has $100,000 in it, $50,000 of which are contributions and $50,000 of which are investment earnings. If you withdraw $60,000, the IRS will consider $50,000 of that to be contributions and $10,000 to be earnings. So any penalty would apply only to the $10,000.

When can I take money out of a Roth?

You don't. While traditional IRAs require that you take minimum withdrawals starting at age 70 ½, Roths have no mandatory withdrawal requirements. So if you retire and you have other assets to live off of, you can leave the money in your Roth and allow it to continue to grow for as long as you like. That's a terrif-ic advantage Roths have over traditional IRAs.

When do I have to withdraw money from a Roth?

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Start by looking at your income. There are income limits for Roth IRAs, so if your income is above those limits, then it's a no-brainer: a traditional IRA is the only one for you.

LLet's say you're eligible for both a Roth and a traditional IRA. Generally, you're better off in a traditional if you expect to be in a lower tax bracket when you retire. By deducting your contributions now, you lower your current tax bill. When you retire and start withdrawing money, you'll be in a lower tax bracket, thereby giving less money overall to the tax man. If you expect to be in the same or higher tax bracket when you retire, you may instead want to consider contributing to a Roth IRA, which allows you to get your tax bill settled now rarather than later.

But it can be difficult, if not impossible, to guess what tax bracket you will be in later in life, particularly if you've got a long way to go until you retire. So if you're not sure, another rule of thumb is to keep your retirement savings tax di-versied, meaning you have accounts that will be both taxable and tax-free when you cash out in retirement. For example, if you already have a tax-de-ferred 401(k) plan through your employer, you might want to invest in a Roth IRA if you are eligible.

The Roth also offers more exibility: You can withdraw your contributions (but not the earnings) without incurring a penalty so you have more access to your money. So if you've got a long way to go before retirement, and you're con-cerned about locking away your money for too long and want to be able to get at it if you need it, a Roth might be the way to go.

Which is better for me, a Roth or traditional IRA?

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Basics

A SEP IRA is a type of traditional IRA for self-employed individuals or small busi-ness owners. (SEP stands for Simplied Employee Pension.) Any business owner with one or more employees, or anyone with freelance income, can open a SEP IRA. Contributions, which are tax-deductible for the business or individual, go into a traditional IRA held in the employee's name. Employees of the business cannot contribute - the employer does. Like a traditional IRA, the money in a SEP IRA is not taxable until withdrawal.

One of the key advantages of a SEP IRA over a traditional or Roth IRA is the ele-vated contribution limit. For 2016, business owners can contribute up to 25% of income or $53,000, whichever is less, and can be made in addition to your tradi-tional IRA or Roth IRA contributions.

What is a SEP IRA?

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An employee is eligible to participate in a SEP IRA if he or she is at least 21 years old and has worked for the company in three of the last ve years, and received at least $600 in compensation during the year.

As an employer, you don't have to fund contributions every year. But when you do choose to make contributions, you must contribute not only to your own SEP IRA, but the SEP IRA of every eligible employee.

Who can contribute to a SEP IRA?

A SEP IRA may be your best bet if you are a one-person show and plan to keep it that way. You can open one at virtually any bank, mutual fund company or brokerage rm, and pay low or no annual account fees. Your contribution limit is based on a simple formula: You can put away as much as 25% of your net income, up to a cap that increases periodically to keep pace with ination. In 2016, the cap is $53,000.

IIf you're a small business owner, SEP IRAs are appealing because they are easy and inexpensive to set up, and contributions are tax deductible. A SEP IRA's funding exibility is also a draw. If you have a tough year nancially, you can choose not to contribute to the plan. If you have a great year, you can fund the plan with a larger contribution than you'd originally intended.

How do I know if a SEP IRA is right for me?

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SIMPLE IRAs

A SIMPLE IRA, or Savings Incentive Match Plan for Employees, is a type of tradi-tional IRA for small businesses and self-employed individuals. As with most tra-ditional IRAs, your contributions are tax deductible, and your investments grow tax deferred until you are ready to make withdrawals in retirement.

Unlike SEP IRAs, SIMPLE IRAs allow employees to make contributions. What makes a SIMPLE IRA unique is that the employer is required to make a contribu-tion on the employee's behalf - either a dollar-for-dollar match of up to 3% of salary or a at 2% of pay - regardless of whether the employee contributes to the account.

SIMPLE IRAs have higher contribution limits than traditional and Roth IRAs, and it's cheaper to set up and run a SIMPLE IRA plan than it is to administer many other workplace retirement plans.

What is a SIMPLE IRA?

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To set up a SIMPLE IRA an employer must have 100 or fewer employees earning more than $5,000 each - including all employees who have worked at any point in the calendar year. And the employer cannot have any other retirement plan besides the SIMPLE IRA.

If your employer offers a SIMPLE IRA, you qualify to contribute if you earned at least $5,000 a year during any two years before the plan was set up, and if you expect to earn at least $5,000 this year.

Who can contribute to a SIMPLE IRA?

There are two sets of contribution limits: one for the employee and one for the employer. If you're an employee, you can contribute a percentage of your com-pensation up to a limit of $12,500 for 2016. If you're 50 or older, you can make an additional $3,000 "catch up" contribution.

Your employer must make a contribution every year it maintains the plan. The company can contribute either 2% of your compensation or a dollar-for-dollar matching contribution not to exceed 3% of pay. Your employer must make a contribution even if you choose not to, and all employees must receive the same type of contribution.

FFinally, your company can lower the matching contribution to 1% or 2% of total compensation in any two out of ve years that the plan is in effect. In the other three years, the company must make either a 3% match or the 2% at contribu-tion.

How much can I put into a SIMPLE IRA?

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If you are a small business owner or a self-employed person and you haven't set up any other type of work-related retirement plan, consider the SIMPLE IRA. Unlike prot-sharing or 401(k) plans, SIMPLE IRAs are easy to set up and easy to administer.

TThis is especially true if you work alone but aspire to run a bigger business. Adding even one full-time employee to other plans, like a SEP IRA, can be a big hassle. Not so with a SIMPLE IRA. Keep in mind that the SIMPLE IRA's contribu-tion limits are much lower than those for an SEP IRA ($12,500 for the SIMPLE in 2016, versus a maximum of $53,000 for the SEP), which can affect your ability to save enough for a comfortable retirement.

How do I know if a SIMPLE IRA is right for me?

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