Traditional IRA:

Starting Blocks: Traditional IRA accounts, just like Traditional 401(k) accounts are not subject to tax until you withdrawal the money at age 59 ½.  Money contributed must come from wages, tips, salaries, bonuses, etc. There are many different names thrown around for Traditional IRAs like Rollover IRA and Contributory IRA. These have just been “trademarked” by companies and might sound different but in reality they are the same. If you decide to withdrawal your money before 59 ½ years old you are subject to a 10% penalty. This could be a lot of money depending on how much you have in your account.  So hold your horses till 59 ½. You must begin taking withdrawals by age 70 ½.

The Finish Line: With a Traditional IRA you can contribute up to 100% of your income (similar to 457 Plans but less money) or up to $5,000 a year, $10,000 if you are married.  Wouldn’t it be nice to brag to your neighbor about how you put the max limit into your IRA account?  That would be a great over-the-fence-talk-while-BBQing on your expensive charcoal grill in your smoking jacket.  Then you wake up with toilet paper all over your house.  Don’t brag about your finances. It’s just not classy, even if you do wear a smoking jacket as casual wear.  Your deposits are typically invested in stocks, bonds, funds, and other financial assets.

Roth IRA:

Starting Blocks: Roth IRA accounts are similar to their brother, the Roth 401(k).  Roth IRA has a certain limit ($5,000 for single people) on yearly contributions, much the like the Traditional IRA.  Money can be withdrawn any time you like, but remember that early withdrawals will generate different tax consequences including penalties.  So, if you set up a Roth IRA at age 57 you cannot touch the money until 62 years old without tax consequences. You shouldn’t have waited so long to save. How many times do we have to tell you start saving early?!  Do we need to refer you to the graph again?

The Finish Line: Your contributions (money in the account) grow tax-free; your gains are taxed however.  Like with the Roth 401(k), paying taxes now potentially could be beneficial because of the possibility of tax increases later down the road and you becoming successful and rising to a higher tax bracket.  Good thing we told you to start saving young.

SIMPLE IRA (Savings Incentive Match PLan for Employees):

Starting Blocks: SIMPLE IRAs are established by employers, but are more focused towards small start-ups that do not currently offer a retirement plan.  Tax on contributions is deferred until you begin to take it out at age 59 ½. I’m sure you are sick of hearing that age, but it is very important. You don’t want to be paying fees unless it is a dire emergency.

The Finish Line: SIMPLE IRAs have many of the same attributes as a Traditional and Roth IRA, except that they are employee sponsored, so it also has attributes of a 401(k) and the others.  Employees contribute with a payroll deduction and employers can choose to match the full amount or a partial amount.  Sound familiar?

Take ADVANTAGE of these retirement savings vehicles, like we said. Don’t count on a family fortune to fall into your lap.  You might have a better chance of seeing the Hale-Bopp Comet twice in a lifetime than that happening (scenario not backed by astronomical data).  Let’s move to the perks of the working world!