While many trust accounts fall under similar guidelines, the IRA accounts you are eligible open or rollover include:
- 401(k), 403(b), 457, TSP
- Roth IRA
- Traditional IRA
- SIMPLE IRA
- SEP IRA
These accounts have different tax rules, eligibility requirements, contribution requirements, and distribution requirements.
Here we will focus primarily on Roth and Traditional IRA. With a traditional IRA, you receive a tax break when you contribute to the account, but have to pay taxes when you withdraw during retirement. With a Roth IRA, you do not receive any tax benefits during contributions, but when you withdraw, your distribution is tax-free.
Traditional IRAs include a mandatory minimum annual withdrawal once you turn 72, called required minimum distributions (RMDs). There is no required withdrawal with Roth IRA. With a Roth IRA, once you turn 59 ½ years old, withdrawals are tax-free and penalty-free. You can withdraw your contributions before that age, but if you withdraw your earnings, you will need to pay taxes on that amount. Traditional IRAs are also penalty-free once you turn 59 ½, but you will still need to pay taxes.
Self-directed IRAs must follow the general IRA contribution limits. In 2021, and 2022 the contribution limit for retirement accounts is $6,000 and $7,000 if you are over the age of 50. This amount increased from $5,500 ($6,500) in 2019. In 2020, they removed the age limit to contribute to both traditional and Roth IRAs. Before 2020, individuals over the age of 70 ½ could not make regular contributions to a traditional IRA.
Traditional IRAs do not have income limits to contribute to an account, however, there is an income limit for Roth IRAs. This is based on your filing status and income. That information can be found here. If you would like to find out more information about IRA contribution limits, you can click here.