IRA stands for Individual Retirement Account. An IRA is a trust account that is designed for individuals to save for retirement. The Bank of Elk River is the custodian for these trust accounts and we are responsible for administering the account, which includes record keeping and required IRS tax reporting.
As the name implies, this account has only one owner and an application is required. The application will name the owner (with their personal information such as social security number, address, date of birth) and also any primary or secondary beneficiaries. The contigent beneficiary will become the recipient of the IRA funds if the owner is deceased. The secondary beneficiary(ies) becomes the owner(s) if the primary beneficiary predeceases the IRA owner.
A Roth IRA is an individual retirement plan that bears many similarities to the traditional IRA, but contributions are not tax deductible and qualified distributions are tax free. Similar to other retirement plan accounts, non-qualified distributions from a Roth IRA may be subject to a penalty upon withdrawal.
A Simplified Employee's Pension Plan (SEP) is one form of a retirement plan available to employers. Employers with few or no employees may prefer this plan because it is simple to establish and maintain. Each eligible employee establishes a SEP/IRA account and the employer makes the contribution to the account. Once the SEP/IRA account is established, the account follows the same rules as a traditional IRA.
Depending on income qualifications, you may be able to establish a Coverdell Education Savings Account (CESA) to finance the qualified education expenses of a designated beneficiary. There is no limit on the number of separate CESAs that can be established for a designated beneficiary. However, total contributions for the beneficiary in any year cannot be more than $2,000, no matter how many accounts have been established. This benefit applies not only to higher education expenses, but also to elementary and secondary education expenses.
Sources: IRS, Investopedia, The Bank of Elk River