Individually managed retirement savings plans are set up and managed by each individual taxpayer. More commonly known as Individual Retirement Accounts (IRAs). IRAs were first authorized by the Employee Retirement Income Security Act of 1974 (ERISA). Originally, IRAs were limited to workers without pension coverage, but the Economic Recovery Act of 1981 made all workers and spouses eligible to have IRAs.
An IRA is long-term retirement savings account or annuity that you establish directly with a financial institution, such as a bank, brokerage, insurance, or mutual fund company (the “fiduciary”).
The amounts that you contribute must be from wages earned as an employee (Form W-2), commissions, compensation received from self-employment (Form 1099-NEC and/or Form 1099-MISC), and/or taxable alimony. Income received from passive income sources such as interest, dividends and capital gains, pensions and retirement plan distributions, rental real estate, gifts and nontaxable alimony does not qualify as income sources that can be contributed into an IRA.
You can make contributions into an IRA at any time during the current year, and up through April 15th of the following year.
One provision of the SECURE Act of 2019 removed the age limit to make contributions into an IRA - as long as you continue to work. Under prior law, the age at which one could make contributions into an IRA had been capped at age 70½.
There are two types of individually managed retirement savings plans:
- Traditional IRAs
- Roth IRAs