Types of IRA Account

Traditional IRA (from a Big Institute)

These are IRA that you can only buy stocks and bonds with and are not that useful for Real Estate and Note Investors.

Roth IRA (from a Big Institute)

Again these are not that useful for Note and Real Estate Investors

Self Directed IRA

The Traditional IRA is widely known for its tax advantages, as the account owner does not pay taxes upfront, and the contributions can be tax deductible. There are no income limits on who is eligible to enroll in a Traditional IRA, but not everyone can receive a tax deduction. All growth within the account is tax deferred but you must pay taxes upon distribution. You can take distributions at any time, however, a 10% penalty is applied if you take a distribution before you are 59 1/2. Age 59 1/2, distributions are penalty free but taxed as current income. You also must begin taking RMDs, or required minimum distributions, at age 70 1/2 and can no longer make contributions. In 2017 & 2018, the contribution limit for the Traditional IRA is $5,500 and also allows for a $1,000 “catch-up” for those over the age of 50.

Self Directed Roth IRA

The IRA owner of a Roth must pay taxes upfront for all money contributed, however all growth within the account is tax deferred, but if you take a qualified distribution, it can be potentially tax free. This is a major advantage for the younger population, as they can make contributions over a lifetime and watch their funds grow. In 2017 & 2018, the contribution limit for a Roth IRA is $5,500, and also allows for a $1,000 “catch-up” for those over the age of 50.

SEP IRA

The Simplified Employee Pension IRA is a type of retirement account used by those who own businesses.  The account allows for the owner to contribute to his own account as well as accounts for the business’ employees.  Contributions can be made by the employer to a maximum of 25% of the employee’s salary.  The contributions made to the accounts in a SEP IRA must be in equal percentages for all qualifying employees.  A self-employed individual can contribute up to 20% of their net earnings (Schedule C).  The contribution limit for 2018 was increased by the IRS to a total of $55,000.

Health Savings Account

A Health Savings Account can be used for all qualified medical expenses.  To qualify for an HSA, the individual must:

  • Have a High Deductible Health Plan (HDHP)
  • Not be enrolled in Medicare
  • Not be claimed as a dependent on tax return

The contributions toward an HSA are tax deductible and tax free for all qualified distributions. You can also fund your HSA once in your lifetime from your Traditional IRA up to the maximum contribution limit for that year.

 Roth 401(k)

The Roth 401(k) is a type of retirement savings plan. It was authorized by the United States Congress under the Internal Revenue Code, section 402A,[1] and represents a unique combination of features of the Roth IRA and a traditional 401(k) plan. Since January 1, 2006, U.S. employers have been allowed to amend their 401(k) plan document to allow employees to elect Roth IRA type tax treatment for a portion or all of their retirement plan contributions. The same change in law allowed Roth IRA type contributions to 403(b)retirement plans. The Roth retirement plan provision was enacted as a provision of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001).