Retirement Planning - What Are You Allowed to Contribute?
Updated: Jan 18
First off, what is an IRA?
An IRA, or Individual Retirement Account, is a type of investment account that is designed to help people save for retirement. There are several different types of IRAs, including traditional IRAs, Roth IRAs, and SEP IRAs.
Traditional IRAs are tax-deferred, which means that you can contribute pre-tax income and your money can grow tax-free until you withdraw it in retirement. However, when you do withdraw the money in retirement, you will be required to pay taxes on it at your current tax rate.
Roth IRAs are funded with after-tax income, which means that you cannot claim a tax deduction for your contributions. However, the money in a Roth IRA grows tax-free and can be withdrawn tax-free in retirement, as long as you meet certain conditions.
SEP IRAs are retirement accounts for self-employed individuals and small business owners. They work similar to traditional IRAs, but have higher contribution limits.
There are limits to how much you can contribute to an IRA each year. For 2023, the contribution limit for traditional and Roth IRAs is $6,500, or $7,500 if you are age 50 or older. The contribution limit for SEP IRAs is generally much higher, and is based on a percentage of your income.
It's important to note that there are rules and restrictions for IRAs, and it's a good idea to consult with a financial advisor or tax professional to determine which type of IRA is right for you and how to set one up.
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