The IRS publication 590 is designed to offer Individual Retirement Account holders information about the tax implications of this type of account. You can always use Publication 590 to learn about different types of Individual Retirement Accounts or IRAs and how each of them can help you save money in terms of tax benefits. The publication also helps taxpayers to find relevant information about contribution limits for different types of IRAs, and also helps them to calculate the smallest required distribution. Without understanding these important factors, investing in Individual Retirement Accounts may very well ruin the tax benefits of your account.
What Are Individual Retirement Accounts?
An Individual Retirement Account or IRA is actually a type of personal savings plan that allows the account holders to enjoy tax benefits on money that they save for their retirement. Two of the major tax benefits covered by Individual Retirement Accounts are
Any contribution made to Individual Retirements Accounts are either fully or partly tax-deductible that depends upon the type of the account and also a number of other factors.
Another major advantage of the IRAs is the amount in the accounts is not generally taxable, until they are distributed and that includes your earnings and gains too. Moreover, under certain circumstances even the distributed amount may not be taxed, if distributed following a certain set of rules.
Types of Retirement Accounts:
There are two kinds of Individual Retirement Accounts, the traditional IRAs and the Roth IRAs. To open a traditional IRA you must be under seventy years old at the end of the year but there is no such limitation for a Roth Individual Retirement Account. Anybody with taxable compensation and modified Annual Gross Income can give to a Roth IRA.
You can always have a traditional IRA, whether you are covered by another retirement plan or not. If you receive taxable compensation at the end of the year, that is, what you actually earn from working, then you can always open a traditional Individual Retirement Account. Separate accounts can be opened by both you and your spouse, if both of receive compensation.
Required Minimum Distributions (RMD)
The required minimum distribution is another very important topic that IRS publication 590 covers. According to the rules you are allowed to withdraw from your traditional IRA only after you are beyond the age of seventy and half and you are also allowed to withdraw only a certain amount from the current value of your account depending upon your life expectancy.
On the other hand, Roth IRAs are quite similar to traditional IRAs, but with the major difference that contributions to Roth accounts are not tax-deductible under normal circumstances. But under certain regulations distributions from Roth retirement accounts are tax-free.
The IRS publication 590 also provides information about Savings Incentive Match Plans for Employees that are also known as Simple Individual Retirement Accounts established for self-employed and small-scale employers.