Understanding Your Simple IRA: Key Facts for Retirement Savings

If your employer provides you with a simple IRA, it can be a great tool when saving for retirement. However, you need to make sure that you understand everything about it in order to take full advantage of it. Here are a few things to know about your simple IRA.

1. Maximum Contribution Limits

You need to make sure that you understand how much money you can contribute to your plan each year. It is very important to save as much money as possible in this type of retirement plan. Otherwise, you may not have enough money set aside when it comes time to retire. As of early April, 2010, you can put as much as $11,500 into your simple IRA. If you are over the age of 50, you can put as much as $14,000 into the account. The government is continuously changing this number based on inflation. Therefore, make sure that every year you make sure you understand the contribution limits for this type of account.

2. Tax Advantages

You should also make sure that you understand the tax advantages that you get by investing in this type of account. A simple IRA allows you to contribute money on a pretax basis. This means that the government is not going to take any taxes out of the amount of money that you decide to contribute. Therefore, this allows you to put more money away for retirement more quickly. In addition to this tax advantage, the money is allowed to be invested once it is in the account. Any gains that you receive from investing are also allowed to grow tax-free. You will not have to pay any taxes on the money until you reach retirement age and start withdrawing money.

3. Employer Contributions

In addition to the money you contribute, your employer can contribute money to your account. With a simple IRA, the employer has two options to choose from when it comes to making contributions to your account. They could choose to do a dollar-for-dollar match on what you contribute for up to 3 percent of your annual salary. The other option that they have is to contribute a non-elective contribution of 2 percent to every employee who has an account. With the second option, it does not matter whether you have contributed to your own account. Employer contributions amount to free money that you get to invest and use for your retirement.

4. Investment Options

You should also try to get a good understanding of what investment options you have with your simple IRA. Depending on the company that administers your account, you may have many different options to choose from. Every IRA will typically allow you to invest in stocks, bonds, and mutual funds. However, some IRAs allow you to invest in many more types of investments. Portable, you may be able to invest in real estate, commodities, foreign currencies, or a host of other things.