IRA Account Overview
An individual retirement arrangement (IRA) is a personal savings plan that offers you tax advantages to set aside money for your retirement, or, in some plans, for certain education expenses. Two advantages are that:

1. You may be able to deduct your contributions in whole or in part, depending on the type of IRA and your circumstances, and

2. Generally, amounts in your IRA, including earnings and gains, are not taxed until distributed, or in some cases, are not taxed at all if distributed according to the rules.

The IRA has evolved and now several types of IRAs are available, each suited for a different set of circumstances and objectives.

Traditional IRA

A traditional IRA is any IRA that is not a Roth IRA, a SIMPLE IRA, or an education IRA. This was the original IRA. Two advantages of a traditional IRA are that you may be able to deduct some or all of you contributions to it, depending on your circumstances, and, generally, amounts in your IRA, including earnings and gains, are not taxed until they are distributed.

Roth IRA

Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. But, if you satisfy the requirements, qualified distributions (discussed later) are tax free. Contributions can be made to your Roth IRA after you reach age 70 1/2 and you can leave amounts in your Roth IRA as long as you live. To be a Roth IRA, the account must me designated as such when it is set up. Neither a SEP-IRA nor a SIMPLE IRA can be designated as a Roth IRA.

Education IRA

You may be able to contribute up to $2000 each year to an education individual retirement account (education IRA or Ed IRA) for a child under age 18. Contributions to an education IRA are not deductible. Any individual (including the child) can contribute to a child's education IRA if the individual's modified adjusted gross income is not more than $110,000 ($160,000 on a joint return). The $2000 maximum contribution for each $150,000 and $160,000 on a joint return).

There is no limit on the number of education IRAs that can be established designating the same child as the beneficiary. However, total contributions for the child during any tax year cannot be more than $2000. Amounts deposited in the accounts grow tax free until distributed (withdrawn).

SEP IRA (Simplified Employee Pension)

A simplified employee pension (SEP) is a written arrangement (a plan) that allows an employer to make deductible contributions for the benefit of participating employees. The contributions are made to individual retirement arrangements (IRAs) set up for participants in the plan.

Self-employed individuals, as well as other employers, can set up simplified employee pension (SEP) plans. A SEP plan allows an employer to make contributions toward employees' retirement, and, if self-employed, his or her own retirement, without becoming involved in more complex retirement plans.

A self-employed individual is an employee for SEP purposes. He or she is also the employer. Even if the self-employed individual is the only qualifying employee, he or she can have a SEP-IRA.

SIMPLE IRA (Savings Incentive Match Plan for Employees)

A SIMPLE plan is a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their employees.

A SIMPLE plan is a written agreement (salary reduction arrangement) between an employer and an employee that allows an eligible employee (including a self-employed individual) to choose to:

• Reduce his or her compensation by a certain percentage each pay period, and
• Have the employer contribute the salary reductions to a SIMPLE IRA on behalf of the employee. These contributions are called salary reduction contributions.

  All contributions under a SIMPLE IRA plan must be made to SIMPLE IRAs, not to any other type of IRA.