Individual Retirement Account (IRA)

Individual Retirement Account (IRA)

See Also:
Pension Plans
Keogh Plan
Payroll Accounting
Deferred Income Tax

Individual Retirement Account (IRA) Definition

An individual retirement account or IRA is a personal account that an employee of a company can set up. The contributions to the account are tax deferrable until the funds are withdrawn after age 59 1/2. There are also several contribution limits which are set at $5000 per year.

Individual Retirement Account (IRA) Explained

An IRA is a great way for employees to invest a percentage of their paychecks every year so that they will have plenty when they decide to retire. Some IRA advantages are that the contributions are tax free or tax deferred. This means that the account holder will not have to pay taxes until they withdraw the funds after 59 1/2. However, if they take it out sooner than this age then there is a penalty fee. The great advantage of tax deferred contributions is that the account can earn more on interest over time than if the funds were first reduced by taxes and then put into an account. Another disadvantage is the contribution limit. This means that the individual can only earn so much over time even if the employee did want to contribute more.

Individual Retirement Account (IRA) Example

Tim is working for Wawadoo Inc. and has decided that he would like to start an IRA account. He sets up the plan through the company and begins to contribute 10% of his paycheck to it. Tim makes $90,000 per year meaning that if allowed he would make contributions of $9,000 (90,000 * .1). However, he is only allowed to contribute $5,000 into his individual retirement account.
Individual Retirement Account


What the Current Hiring Process Costs

It’s hard for companies to realize how much they are actually spending when it comes to hiring a new employee. Once they decide it’s time to pursue a new worker, a lot of resources are used to find the perfect candidate for the job. Finding the perfect candidate within a vast number of people might

Read More »

When You Know It’s the Right Hire

Hiring is an important aspect in a company’s development. When you know it’s the right hire, it can benefit the company in countless number of ways, such as saving money, increasing productivity, and improving employee morale. However, when done incorrectly, it can damage the company significantly. A company should always be able to determine whether

Read More »

When to Outsource or Why Outsource at All?

As a financial leader of your organization, it’s important that you understand how your time works and what you are spending your time on. In today’s blog, we’re taking a look at when to outsource accounting or specific tasks and services and why outsource at all. Before we go into when, first, let’s understand, what

Read More »


Financial Leadership Workshop

MARCH 28TH-31ST 2022

Share on facebook
Share on twitter
Share on linkedin


Strategic CFO™ Financial Leadership Workshop
The Art of the CFO®


June 13th - 16th 2022