Are There Two Types of IRA?

Are there two types of IRA

IRAs are tax-advantaged investment vehicles that allow investors to hold various kinds of investments tax-free. You can open an IRA through brokers or robo-advisors.

These accounts come with contribution caps and minimum distribution rules (RMD), while they also carry market risks.

If your workplace offers a 401(k), saving in it should take priority over opening an IRA account.

Traditional IRA

A traditional IRA allows you to defer taxes on investment growth until you withdraw it in retirement, delaying tax liabilities until withdrawing it all at once. Anyone with earned income can open and contribute to one; the exact amount depends on whether your spouse (if married) has access to workplace retirement plans as well as your income level.

Spending less is key, yet making savings a priority can be difficult. An online broker or robo-advisor can make saving easier by automating savings; many even provide low fees and provide access to various investments.

Withdrawals from traditional IRAs are subject to tax at your current income tax rate; withdrawals prior to age 59 1/2 incur an early withdrawal fee of 10%. But once retired, traditional IRAs can become invaluable assets in helping reach financial goals. Learn more about its advantages before checking our ratings of brokers and robo-advisors for their account fees, minimums, investment options and advice programs.

Roth IRA

Roth accounts are tax-advantaged investments that allow investors to store post-tax funds for retirement with tax-free returns thanks to compound interest. Roth accounts are particularly advantageous for younger people as their retirement tax bracket may be lower than it is now and over time their investments’ returns can rapidly compound with time.

Roth IRA contributions may not be fully eligible due to your income; your modified adjusted gross income (MAGI) and filing status determine how much can be contributed.

Roth IRAs do not require required minimum distributions at age 59 1/2 like traditional IRAs and employer-sponsored retirement savings plans, meaning you could keep investing for much longer, thus benefitting even further from compound interest and helping protect your heirs’ inheritances.

Rollover IRA

No matter whether you are transitioning from one employer to the next or simply switching jobs, a Rollover IRA could be your go-to retirement account solution for consolidating retirement accounts and monitoring growth. These investment vehicles often provide more choices than your 401(k), allowing you to continue contributing even after leaving their current company.

Direct transfers offer the advantage of moving retirement assets directly from an old employer’s plan into an IRA without incurring taxes; indirect rollovers may present additional tax issues if executed improperly.

An IRA’s primary benefit lies in deferring taxes until withdrawal in retirement, unlike employer-sponsored plans which often tax withdrawals at ordinary income rates and may impose an early withdrawal penalty if taken before age 59 1/2.


SEP IRAs enable employers to make tax-deductible contributions on behalf of eligible employees, making this type of retirement plan appealing to small businesses without enough resources or time for developing their own retirement plan. Employees can invest their own funds directly in this account with access to multiple investment options – meaning benefits are sooner vested than with some employer plans.

Contribution limits for SEP IRAs are higher than traditional IRAs and 401(k) plans, and funds can grow tax-deferred for years. Withdrawals will be taxed as ordinary income in retirement; any early withdrawal may incur a 10% penalty tax. You can set up and administer an SEP IRA with any financial institution offering retirement accounts; however if using one as trustee it may have specific requirements that must be followed; typically these forms and information must be provided.

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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