Types of IRAs

If you want an upfront tax deduction today, and you think your income tax rate will be lower when you retire, a Traditional IRA may work for you. Some benefits:

• No contribution restrictions based on age.
• Upfront federal income tax deduction available. Based on your federal income tax filing status and your modified adjusted gross income (MAGI), you may receive a tax deduction on some or all of the contributions (up to the annual IRS contribution limit) you make in that tax year, which may put you in a lower federal income tax bracket. The amount of the available deduction also depends on whether you (or your spouse if you are married and filing jointly) are covered by an employer’s 401(k), 401(a), 403(b), or SIMPLE retirement plan or Simplified Employee Pension Plan.
• Maximum contributions. In tax year 2023, the aggregate amount that you can contribute to all of your traditional IRAs and Roth IRAs cannot be more than $6,500 at age 49 and under; $7,500 if you are age 50 or older by the end of that tax year. Amounts contributed in excess of this annual limit can be corrected by a distribution (including attributable earnings) no later than the due date for filing the individual federal income return (including extensions) for that tax year. If a corrective distribution is not timely taken, the excess is subject to an IRS 6% excise tax each year that the excess remains in the traditional IRA.
• Income tax due on withdrawals. You pay federal income tax on deductible contributions and earnings in the traditional IRA when you take a distribution of those amounts. If you are under 59½, you may also be subject to an IRS 10% premature distribution penalty tax unless you qualify for an IRS exception.
• Required minimum distribution. You must start taking required minimum distributions from the traditional IRA, with respect to distributions made after December 31, 2022, if you have reached age 73 after that date.
• First-time homebuyer’s exemption from IRS penalty tax. Up to $10,000 can be withdrawn from a traditional IRA for first-time homebuyer expenses without incurring the IRS 10% premature distribution penalty tax. However, the withdrawal (to the extent it consists of deductible contributions and earnings) is subject to federal income tax.

With a Roth IRA (Individual Retirement Account), you make after-tax contributions to save and grow your retirement investments tax-deferred. If you meet the IRS rules for a qualified distribution, the earnings on those after-tax contributions are not subject to federal income tax when withdrawn. And there are no age requirements for withdrawals and contributions. This may complement your income planning strategy in retirement. Some benefits:

• No contribution restrictions based on age. You can make contributions to a Roth IRA, provided that you have earned income and based on your federal individual income tax filing status and modified adjusted gross income (MAGI).
• After-tax contributions. Contributions to a Roth IRA are made on an after-tax basis, meaning that they are subject to federal income tax in the tax year to which those contributions are attributable.
• Tax-free withdrawals of contributions to a Roth IRA. Amounts contributed to a Roth IRA are not subject to federal income tax when withdrawn.
• Tax-free withdrawal of earnings available. Earnings on Roth IRA contributions may be subject to federal income tax (unless your withdrawal is a “qualified distribution”), and may be subject to an IRS 10% premature distribution penalty tax if taken before age 59 1/2 (unless you qualify for an IRS exception).
  • Amounts must have been in the Roth IRA for at least 5 tax years; and
  • The distribution is:
    -Made on or after the date you reach age 59½,
    -Made because you are disabled,
    -Made to a beneficiary or to your estate after your death, or
    -One that meets the requirements for first time home purchase (up to a $10,000 lifetime limit).
• Maximum contributions. In tax year 2023, the aggregate amount that you can contribute to all of your traditional IRAs and Roth IRAs cannot be more than $6,500 (if age 49 and under); $7,500 if you are age 50 or older by the end of that tax year.
• Leave it as an inheritance. There are no Required Minimum Distributions for Roth IRA's while the owner is living. You can even leave it to your heirs for an income tax-free inheritance provided that the Roth IRA has been established for at least 5 tax years (there may be estate taxes).
• First-time homebuyer’s exemption. Earnings from a Roth IRA will not be subject to an IRS premature distribution penalty tax for up to $10,000 withdrawn for first-time homebuyer expenses.

A rollover IRA is an IRA account that allows you to transfer and consolidate an account under most retirement plans sponsored by a former employer to a traditional IRA. You may have a few retirement plan accounts from previous employers and managing them all may be challenging. Consider a direct rollover of your account balances into an IRA to consolidate your accounts and enable the retirement amounts to continue to grow tax deferred until withdrawn. There are some limitations and a few benefits such as:

• Most plans qualify. You may elect a tax-free direct rollover of eligible amounts from most employer-sponsored plans, including 401(a), 401(k), 403(b), governmental 457,  SIMPLE plans (after two years), and SEP IRAs.
• Simple, yet different. While rolling over may help simplify your recordkeeping, it’s important to remember that an employer plan may allow loans while IRAs cannot offer loans. In addition, there are different IRS exceptions to the IRS 10% premature distribution penalty tax for amounts withdrawn from retirement plans than those that apply to IRAs. It’s best to speak with a financial professional about the varied benefits and options available to you for each type of plan.
• One straightforward statement. Get a clearer holistic view of your investments once you’ve completed your rollover to consolidate your money. With just one account, there is little chance to lose track or forget about a long lost account.
• Keep on rollin’. Should you change jobs again, you may be able to roll your account under that previous employer’s retirement plan into your IRA as well.

If you’re a small business owner looking to give your employees a simple but valuable benefit, the SEP IRA is relatively easy to set up and administer.

The Simplified Employee Pension (SEP) is a retirement plan that lets self-employed and small business owners make a tax-deferred retirement contribution to the plan by establishing a traditional IRA on behalf of each employee. Voya can help you set up a SEP plan for your small business, and serve as the IRA custodian holding assets for each employee. Key features:

• You can set up a SEP plan for yourself if you’re self-employed (sole proprietor or as a partner).
• If you run a business and have employees, a SEP plan covers all employees who:
  • are at least age 21,
  • have worked for the employer in at least 3 of the last 5 years; and
  • have received at least $750 in compensation from the employer in 2023.
• Contributions are made by the employer and are not included as the employee’s income when contributed.
• Greater IRS contribution limit. Annual IRS contribution limits are higher than the annual contribution limit applicable to Traditional and Roth IRAs. An employer may contribute to each eligible employee under a SEP 25% of each employee’s pay up to $66,000 in tax year 2023.
• To adjust for cash flow fluctuations, employers can decide on how much to contribute each year or can opt out for a year. 
• Contributions could reduce an employer’s tax liability. Contributions to a SEP may be deducted from the employer’s earnings, which may reduce current federal income taxes.
• Income tax due on withdrawals. Participants pay federal income tax on amounts distributed from the SEP. If the participant is under 59½, they may also be subject to an IRS 10% premature distribution penalty tax unless they qualify for an IRS exception.

Big corporations use retirement plans like the 401(k) to attract and keep good employees. Whether you are self-employed or if you are employer with no more than 100 employees, the SIMPLE IRA may give you and your employees big-time retirement benefits without the big-time start-up and operating costs. Voya can help you set up a SIMPLE IRA plan for your small business. We can serve as the IRA custodian holding assets for each employee, too.

Key Features:

• Easy for you. Even the IRS says the SIMPLE IRA is “easy and inexpensive to set up and operate.”¹ To adopt a SIMPLE IRA plan, all a small employer needs to do is sign the IRS Model Form 5304-SIMPLE or Form 5305-SIMPLE.
• Something for everybody. A small employer can set up a SIMPLE IRA plan for all kinds of businesses and organizations with up to 100 employees including self-employed, tax-exempt employers, and governmental entities, provided that that employer does not maintain any other retirement plan. Employees receiving at least $5,000 of compensation in two preceding years from that employer and expected to receive $5,000 in compensation in the current year are eligible to participate in the SIMPLE IRA.
• Employees may elect to contribute to the SIMPLE IRA up to $15,500 in 2023. Employees who are at least age 50 by the end of the tax year may contribute up to an additional $3,500 in 2023. In addition, the employer must contribute each year either a matching contribution up to 3% of compensation or 2% non-elective contribution (up to the IRS annual limit on compensation) for each eligible employee.
• A nice perk for eligible employees. Employees do not have to contribute to the SIMPLE IRA and they are immediately 100% vested in employer contributions made to the SIMPLE IRA.
• Income tax due on withdrawals. Participants pay federal income tax on amounts distributed from the SIMPLE IRA. If the participant is under 59½, they may also be subject to an IRS 10% premature distribution penalty tax (25% if the distribution occurs in the first two years of participation in the SIMPLE IRA) unless they qualify for an IRS exception.