Attorney at Law

Individual retirement account (IRA)

What Is an Individual retirement account

An individual retirement account, better known as an IRA, is a type of investment account that affords the creator significant tax benefits with the intent of helping the individual save for their retirement. In general, IRAs fall into one of four broad categories: Roth, SEP, SIMPLE, and Traditional.

Traditional IRAs are the most straightforward type of IRA, allowing certain individuals to contribute a certain amount of money each year to the IRA tax-free. It was decided that the tax-free limit for a traditional IRA in 2022 is $6,000, but individuals who are 50 or older can contribute an additional $1,000. Depending on factors like income, marital status, and whether or not an individual has a spouse with a retirement plan as well, the tax-free deductions for a traditional IRA may be removed and the contributions may still be taxable. Additionally, any gains withdrawn from the IRA are always taxable.

At the opposite end of the spectrum, contributions to Roth IRAs are always taxable, but the withdrawals are not. Roth IRAs are popular because they allow individuals to pay all their expenses up front while growing their tax-free accounts for later. This type of IRA is most appealing to individuals who have a long period to grow their tax-free withdrawals before they retire.

Simplified Employee Pension IRAs, or SEP IRAs, are IRA accounts that are set up by an employer. Typically used by self-employed individuals and small businesses, a SEP IRA’s contributions are tax-deductible as with other IRAs, and, similar to other IRAs, the withdrawn funds are taxable. What sets SEP IRAs apart is that not only does the employer set up the IRAs, but they also contribute directly to each employee’s IRA. 

SIMPLE IRA stands for “Savings Incentive Match Plan for EmployeesIndividual Retirement Accounts.” SIMPLE IRAs are intended for businesses with less than 100 employees and act similarly to traditional IRAs. Contributions are tax-deductible up to $14,000 with an additional $3,000 being deductible for employees over 50 and they grow until withdrawn and taxed as income. However, in a SIMPLE IRA, employers are also mandated to contribute.

Key Takeaways

  • An Individualized Retirement Account is a financial investment to help individuals retire which offers various tax benefits depending on whether the IRA is Roth, SEP, SIMPLE, or traditional.
  • Roth IRAs have their contributions taxed but not withdrawals, traditional IRAs are the reverse, and SEP and SIMPLE IRAs work similarly to traditional IRAs but are provided by and contributed to by employers.
  • IRAs are a form of trust and therefore must be carefully managed and obey certain rules, particularly if the IRA is supplied by an employer. 
  • If you have experienced difficulty or fraud in the management of your IRA, an experienced Employment Law attorney may be able to improve the outcome of your case by utilizing experience and expert knowledge.

Individual retirement accounts, and Employment Law

IRAs are a complex financial investment. For many people, the easiest thing to do is to allow their employer to manage it on their behalf. Employers that accept the responsibility of managing employee IRAs are therefore bound by several rules and regulations.

Some types of IRA are notable for their uniqueness from employer-provided IRAs. For example, a rollover IRA is a type of IRA that is established when an employee transfers assets from a preexisting employer-provided retirement benefit such as a 401(k) into an IRA.

A Payroll Deduction IRA doesn’t describe the IRA itself, but the contribution method used. Under a Payroll Deduction IRA, employees make contributions to either a Roth or Traditional IRA by deducting a set amount of income from their payroll. 

Finally, a SARSEP IRA is a subset of SEP IRAs. SARSEP stands for “Salary Reduction Simplified Employee Pension Plan” This type of SEP is an older type of retirement plan that was established before 1997 and reduces an employee’s salary by a certain amount.

Regardless of the type of IRA, the Internal Revenue Service (IRS) has several rules about how an IRA must be managed. One of the most notable rules is that the IRA must be established as a trust or a custodial account with a financial institution, most commonly a bank. By requiring the IRA to be a trust, this law appoints a trustee to be formally responsible for the management of the IRAs, as well as limiting the actions that may be taken with the IRA. When it comes to IRAs, the trustee is required, by law, to be a bank or someone who passes the examination of an IRS commissioner. 

Since the rules of a trust govern IRAs, the trustee must ensure that the account is not invested in any investments that may be deemed too risky. Additionally, the trust status also forbids the bank from “commingling.” This means that all IRA funds must be held separately from the bank’s other funds and cannot be used for any purpose by the bank outside of the purposes allowed under the trust contract.

Bottom Line

If you have been the victim of fraud, misrepresentation, or theft regarding the management of your IRA funds, you may be able to recover the damages by filing a lawsuit. To file that lawsuit and prevail in your case, you will need an Employment Law attorney. 

An experienced Employment Law attorney can consult with you about your options for recovering your lost or defrauded funds. Then, using their legal expertise, trial tactics, trial, and expert witnesses, your Employment Law attorney will zealously advocate for you and your case to secure you the best possible outcome.

Ask a Lawyer

Ask your own question and get advice from expert attorneys
Ask Question

Featured Employment Law Lawyers

Wall, McLean & Gallagher, PLLC

26 years in practice
Auto Accidents, Employment Law, Personal Injury
View Profile

The Law Office of Zachary Zawarski

13 years in practice
Bankruptcy, Business Law, Employment Law
View Profile

Aaron Delgado & Associates

19 years in practice
Alimony, Auto Accidents, Bankruptcy, Business Law, Child Custody
View Profile

D&O Law Group, LLC

15 years in practice
Criminal Defense, Divorce & Family Law, DUI Law, Personal Injury
View Profile

Law Offices of Ricardo J. Mauro, P.C.

29 years in practice
Auto Accidents, Personal Injury
View Profile

Law Offices of Robert F. Julian

47 years in practice
Auto Accidents, Construction Injury, Personal Injury, Wrongful Death
View Profile


Are you looking for an attorney? Do you have questions about a legal case you are facing? Contact us now and we will put you in touch with a lawyer for free.

Related Posts

Attorney At Law is changing how clients connect with lawyers. By providing an innovative platform to lawyers who want to expand their practice’s reach, AAL is bringing law practices into the future.
6142 Innovation Way
Carlsbad, California 92009
Some of the content of this website may be considered attorney advertising under the rules of certain jurisdictions. The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute an attorney-client relationship.
crossmenuchevron-upchevron-down linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram