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I’m Steve Ember with the VOA Special English Economics Report.
One of the most important questions a worker can ask is: “Will I have
enough money for retirement?
For more than thirty
years, Americans have used individual retirement accounts, or IRAs, to
increase retirement savings. Today, there are several plans that let
workers invest. The plans also offer tax savings.
The Employee Retirement Income Security Act of 1974 provided for
the first IRAs. It set rules for retirement plans run by big businesses.
Other measures provided for individuals who did not qualify for such
plans, called pensions.
The first kind of IRA is now called a traditional IRA. A worker can put
up to four thousand dollars of his or her yearly earnings into a special
account. Workers over the age of fifty can invest four thousand five
hundred dollars. Unlike a pension, the saver controls the account and
decides how it is invested.
Money put in a traditional IRA is not taxed until it is withdrawn. But,
savings cannot be withdrawn before the account holder is fifty-nine and
one-half years old. If the money is withdrawn before that time, it is
taxed like income and there is a ten percent fine. The account holder must
start withdrawals by age seventy and one-half or there also are fines.
At first, IRAs were only for people not covered by pensions at work.
But in 1981, everyone could to open an IRA. Six years later, congress
banned highly paid individuals from claiming tax reductions.
A Roth IRA is a similar plan. Workers can invest up to four thousand
dollars of earnings yearly. But there is no tax savings on the year’s
earnings. Instead, withdrawals from a Roth IRA are generally not taxed.
Roth IRA withdrawals cannot start until the saver is fifty-nine and one
half years old. There are also fines for putting too much money in them.
But people over seventy can still invest.
Small businesses can also set up a kind of IRA. Simplified Employee
Pensions, or SEP IRAs, have elements of both traditional IRAs and
pensions.
SEP IRAs are simple investment accounts controlled by the saver. And,
like pension plans, employers add money to them too. Limits on these
accounts are higher. A worker and an employer can invest twenty-five
percent of the employee’s yearly pay up to forty-two thousand dollars. The
money is not taxed until it is withdrawn.
This VOA Special English Economics Report was written by Mario Ritter.
I'm Steve Ember.
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