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IRA Planning  

What is an IRA? 

In simple terms, an IRA, or Individual Retirement Account (also called an Individual Retirement Arrangement by the IRS) is a tax-advantaged account with the purpose of helping individuals save and invest for retirement. Various types of IRAs exist, having different contribution limits and rule for taking withdrawals or distributions. Accounts are subject to IRS taxation rules that have the potential to change yearly. 

IRAs are valuable components of overall retirement planning; guidance from a qualified financial advisor is helpful in determining the right path for you and your circumstances, for staying up to date on the latest regulations, and for maximizing your contribution while minimizing tax implications. 

At Johanson & Yau, we specialize in helping create effective IRA strategies for clients having a minimum retirement account balance of $500,000.


What are the basic types of IRAs? 

The basic types of IRAs include the traditional IRA, Roth IRA, SEP IRA. Each one is subject to and defined by different rules for contributions, eligibility, taxation, and withdrawal requirements. Tax deductible characteristics depend upon your income and whether or not you are currently enrolled in a company retirement plan. 

For Individuals:  

Traditional IRA 

Although rules could change, contributions to most traditional IRAs are tax-deductible, and at the time of withdrawal are subject to taxation at the rate for ordinary income at the individual’s tax rate in retirement. Required minimum distributions must be taken beginning at a mandatory age of between 70 ½ and 72. Contributions must come from earned income. 

Roth IRA 

Contributions to a Roth IRA are not tax-deductible but withdrawal distributions are tax-free. That is, after-tax dollars are used to fund the Roth IRA then no tax is imposed on the investment gains. No minimum distributions are required, so funds can remain invested, and you have the opportunity to keep on contributing as long as you have earned income, with no upper limit on age. 

For small-business owners or self-employed 


Independent contractors, small business owners, and freelancers may choose the SEP, or Simplified Employee Pension, IRA.  A SEP account is subject to tax rules that are similar to the Traditional IRA. 

IRA vs 401(k) 

The general difference between a 401(k) and an IRA is that an employer offers a 401(k) to its employees whereas an IRA is a retirement fund account that an individual opens with a broker or a bank. 

Employer plan characteristics can vary, but typically a 401(k) allows higher contributions to the account and may or may not offer employer matching. Investment choices may be limited. An IRA can be self-directed, which means that you have to opportunity to make investment choices in the account, which can hold stocks, bonds, mutual funds, ETFs, cash, or some other assets. 

Loans may be possible from qualified plans, 401(k) or 403(b) accounts, but loans are not permitted from IRAs. IRAs are intended to be long-term investment choices. In most cases if you withdraw funds from an IRAs before the age of 59 ½, you’ll be subject to a 10% penalty, and you’ll be required to pay any deferred tax liability owed.  

It is permissible to contribute to multiple retirement accounts in the same year. Each is subject to particular income and other requirements, but contributions can be made to both an IRA and a 401(k) plan at your employer as long as annual limits are not exceeded.  

IRA Retirement Planning  

An experienced financial professional can guide you through the process of selecting the right type of IRA for your goals and circumstances as part of your overall financial plan. The team at Johanson & Yau is available to help you make these critical decisions that will allow you to maximize your retirement contributions and minimize your tax exposure. Talk to us today.