Different Types Of Iras

Individual Retirement Accounts are accounts that taxpayers use for their retirement plans

. You can set aside some money every year that goes towards your retirement and usually can get a tax cut for the amount you put in your IRA. You can also put a smaller amount of money in the IRA for a nonworking spouse.

There are a few different types of IRA accounts that can be used. Each have benefits and advantages. Here are the main ones.

1. Traditional IRA: Traditional IRAs are usually tax-deductible. You can place money in the account before you are taxed on it. When you withdraw money from the account, however, it is usually taxed.

Money inside a traditional IRA does not have a tax impact. It is only after the money is taken out that the money is taxed on. If you still have a portion of money left in the account that money remains is not taxed.

2. Self Directed IRA: People who use self directed IRAs have the advantage of being able to make investments for their retirement. Self directed IRAs allow individuals to invest money in an individual retirement account that is set aside specifically for their retirement plan. Self directed IRAs are not limited to investments in one particular area. That means people investing in self directed IRAs can invest in mutual funds, stocks, bonds, or any other investment that they want.

3. ROTH IRA: ROTH IRAs are accounts that have money that have already been taxed on before. Since the money has already had taxes taken out, the money that is withdrawn is normally tax-free. When the money is in the IRA it also has no tax impact.

4. SEP IRA: SEP stands for Simplified Employee Pension Individual Retirement Account. It allows an employer to make contributions towards a Traditional IRA retirement plan for one of their employees. This is mostly popular with small businesses or self-employed individuals.

5. SIMPLE IRA: a simple IRA allows both the employee and employer to make contributions. It is a simplified version of the SEP IRA, but with lower contribution limits so it does not cost as much. Simple IRA has easier administration tactics than SEP IRAs.

by: John Coktostin

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