Need a plan for retirement? Midstates Bank can help.
The purpose of an Individual Retirement Account (IRA) is to help you save for retirement by it’s significant tax advantages. By opening an IRA you can one day have the retirement you truly want. It’s one of the smartest decisions you will ever make. To open an IRA or to learn more about your options, visit your local branch.
Traditional IRAs are tax-deferred retirement savings plans. If eligible, individuals may receive a tax deduction for regular, catch-up, and spousal Traditional IRA contributions. IRA holders do not include earnings from Traditional IRAs in their taxable income until the year they take a distribution.
- Earnings grow tax free
- Contributions are deductible if eligible
- No contributions after age 70½
- Required minimum distributions (RMD) begin at age 70½
Similar to Traditional IRAs, Roth IRA earnings grow tax-deferred. But unlike Traditional IRAs, all Roth IRA contributions are considered after-tax assets and are ineligible for an income tax deduction. The main benefit of a Roth IRA is realized when the assets are distributed. If certain requirements are met, individuals may take tax and penalty free Roth IRA distributions.
- Earnings grow tax free
- Qualified distributions are tax and penalty free
- No age restrictions for contributions
- All contributions are non-deductible, after-tax dollars
- No RMDs at any age
SEP plans allow employers to make discretionary contributions to an employee's Traditional IRA. For 2021, an employer may contribute up to the lesser of 25% of compensation or $58,000 ($57,000 for 2020). In that way, SEP plans are similar to profit sharing plans.
- Employer established retirement plan
- The employer is allowed to deduct a percentage of the participant's compensation
- Contributions are deductible by the employer, and not included in the employee's yearly income
- Contributions are not subject to Federal withholding, FICA or FUTA taxes, unless self-employed
- Earnings sheltered from federal and most state income taxes until withdrawn
SIMPLE IRA plans are designed for businesses with 100 or fewer employees. SIMPLE IRA plans consist of a deferral program for the employees and a mandatory contribution made by the employer. In that way, SIMPLE IRAs are similar to 401k plans.
- Employee sponsored retirement plan
- Employer must employ 100 or less employees
- Employee, by making elective deferrals, can defer current income taxation
- Employer may make matching contributions
- An employer is allowed to deduct the cost of elective deferrals
- Earnings on deferrals are sheltered from federal and most state income taxes until withdrawn
- Contribute up to $19,500 in 2020 & 2021 for those age 50 or younger.
- Contribute up to $22,500 in 2020 & 2021 for those age 50 or older.
Distributions from IRAs before age 59 1/2 may be subject to an IRS early withdrawal penalty. Please consult your tax advisor or accountant with any tax-related decisions.