3 Types of IRAs

What are the 3 types of IRAs

IRAs are individual retirement accounts (IRAs) offered by banks, credit unions and investment firms that conform with IRS regulations on eligibility, contribution limits and taxes.

IRAs provide investment options to those without access to workplace-based retirement plans, giving them access to stocks, bonds and mutual funds as well as more unique assets such as real estate or precious metals.

Traditional IRA

Contributions to Traditional IRAs are usually tax-deductible, while withdrawals in retirement are taxed as income. Each year the IRS establishes an IRA contribution limit.

Traditional IRAs provide one major benefit: earnings grow tax-deferred until withdrawal in retirement, helping lower both your current tax bill and accounting for potential higher tax brackets at that time.

Tax breaks associated with Traditional IRAs depend on your filing status, income level and whether or not you already have another workplace retirement plan. Furthermore, switching jobs allows for the money in an old employer’s retirement account to be easily transferred without worrying about tax implications later. Self-employed or small business owners who operate under their own name should consider Simplified Employee Pension (SEP) IRAs or SIMPLE IRAs instead for even greater tax relief.

Roth IRA

IRAs can hold any variety of assets, from CDs and bonds to mutual funds and stocks. Usually managed by their financial institution of deposit – be it a bank, credit union or brokerage firm – an IRA can help provide security when managing investments across many disciplines.

People open Individual Retirement Arrangement (IRA) accounts in order to save for retirement. Certain investments within their accounts may be tax-deferred and allow withdrawal penalty-free at certain ages; others do not and the amount of taxes due could be significant if withdrawing before age 59 1/2.

The Internal Revenue Service has established annual contribution limits to individual retirement accounts (IRAs). Small-business owners and self-employed individuals typically opt for Simplified Employee Pension (SEP) IRAs, which vary annually in contribution limits; alternatively they could consider creating a SIMPLE IRA which functions similarly to a 401(k). Employers contribute additional matching contributions into each employee IRA with employees having the choice whether or not to accept them.

Simplified Employee Pension (SEP) IRA

Simplified Employee Pension (SEP) IRAs provide small business owners with an opportunity to make tax-deductible contributions on behalf of themselves and their employees, growing tax deferred until retirement when withdrawals will be taxed as ordinary income.

Contribution limits for SEP IRAs are higher than traditional and Roth IRAs, yet lower than company-sponsored 401(k) plans. You may contribute up to 25% of an eligible employee’s compensation; and must make identical contributions across the board.

Withdrawals must begin no later than age 72, and any assets left in the account after that are subject to a 10% penalty. Furthermore, you cannot borrow against funds held within an SEP IRA. When considering opening one yourself, use an online tool to compare costs, fees and investment options of potential custodians before selecting one for operation – any errors could result in lost tax benefits!


A SIMPLE IRA is an easily managed and cost-effective workplace retirement plan suitable for small companies; however, self-employed business owners may benefit from using alternative retirement solutions (such as SEP or solo 401(k).

Employers may make matching or non-elective contributions to employees’ SIMPLE IRA accounts. Employees have the option of elective deferrals and can select how their money should be invested; earnings growth in this account remains tax-deferred until withdrawals occur in retirement.

Employees withdrawing funds before age 59 1/2 will owe income taxes on the full amount distributed and potentially incurring penalties if it has been two years since their first contribution. Rolling that money over into a traditional IRA allows them to avoid this tax burden and penalties altogether – something most employers offer with their 401(k) plans too! Alternatively, employees can invest their money using SIMPLE IRAs, although they tend to offer less investment options.

Raymond Banks Administrator
Raymond Banks is a published author in the commodity world. He has written extensively about gold and silver investments, and his work has been featured in some of the most respected financial journals in the industry. Raymond\\\'s expertise in the commodities market is highly sought-after, and he regularly delivers presentations on behalf of various investment firms. He is also a regular guest on financial news programmes, where he offers his expert insights into the latest commodity trends.

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