62. Demystifying Retirement Accounts: Traditional IRA, Roth IRA, Rollover IRA and SEP IRA

Nov 8, 2024

Dive into the world of IRAs, where traditional, Roth, rollover, and SEP accounts take center stage! Discover who should choose a Roth IRA and why younger investors love them. Learn about the contribution limits for 2024 and the ins and outs of handling excess contributions. Explore the benefits of SEP IRAs for small business owners and why keeping rollover funds separate is a smart move. With expert insights on tax implications and eligibility requirements, get equipped to make savvy retirement decisions!

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INSIGHT

Retirement Accounts Are Tax-Restricted Rooms

Retirement accounts are a tax-guarded “room” where the IRS limits who can enter and how much they can add each year.
Taxable brokerage accounts sit on a different “floor” and allow unlimited contributions but taxable gains and losses.

ADVICE

Follow Annual IRA Contribution Limits

For 2024 and 2025, limit IRA contributions to $7,000 if under 50 and $8,000 if 50 or older across all IRAs combined.
Track total contributions across accounts to avoid exceeding the annual cap.

ADVICE

Ensure You Have Taxable Compensation

You must have taxable compensation (wages, self-employment income, taxable alimony) to contribute to an IRA.
Passive income like dividends, interest, pensions, or deferred compensation does not qualify as compensation.

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Today we’re learning allllll about IRAs (individual retirement arrangements/accounts) including Roth IRAs, Traditional IRAs, Rollover IRAs and SEP IRAs. You’ll understand contribution limits, tax implications, and eligibility requirements for each account. As always, we aim to empower you with all the knowledge you need to make informed decisions for future you. This is not advice.

✨Roth IRAs are best for you if you are in a lower income tax bracket and do not need a tax break, because you are taxed upfront, not later.

✨Traditional IRAs are best for you if you do not qualify for a Roth, or if you need a tax break… if you qualify for the deduction. The benefits are before tax dollars, offering you a tax break if you are eligible bc you are in a higher tax bracket.

✨Rollover IRAs you rollover an employer sponsored plan, like a 401k in the plan you want to keep them separate so you can roll it back into a new 401k plan at a new employer.

✨SEP IRAs are best for small business owners who do not want the complexities of 401ks. There are higher contribution limits, and all contributions are made by the employer.

Contribution Limits
You have to have taxable compensation and your modified AGI. Beginning in 2024, the IRA contribution limit increased to $7,000 ($8,000 for individuals age 50 or older) from $6,500 ($7,500 for individuals age 50 or older). This stayed the same for 2025.

Resources:

Contribution limits: https://www.irs.gov/publications/p590a

SEP IRA FAQ: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-seps

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