6 Types of IRAs: Find the Right IRA Type for You

HomeInvesting6 Types of IRAs: Find the Right IRA Type for You

Want to Score Cash For Free?

  • Survey Junkie: Earn up to $50 per survey with one of the highest-paying survey sites on the web. Join Survey Junkie Now
  • SoFi Money: Earning money for unlocking better features sounds like a dream. But this free banking app really pays you $100 with you switch your direct deposit to SoFi Money. Get SoFi Money.
  • Aspiration: This mobile banking app lets you do everything for free and takes no fees — ever. Better yet, if you join through this link you can get $100 in your new account.

There are different types of IRA accounts. It can be hard to know which one to choose. Don’t worry, we are here to show you the different types of IRAs.

One thing we can all agree on is that there are many different types of IRA accounts and it can be tough to know which one to choose. Don’t worry, we are here to show you the different types of retirement accounts and which type of IRA can best benefit your financial and retirement goals. Keep reading to learn which IRA account is best for you and even how to put precious metals into your IRA plan and more.

1. Traditional IRA

The most popular type of IRA is called a traditional IRA account. This type of IRA has many tax-advantages. It typically is used as a retirement account. The tax you pay is upfront which is an advantage is taxes go up over time. You will also get a tax write off when you contribute.

This can help you go into a lower income bracket or simply lower the taxes you pay or increase them at the end of the year. The next benefit is that the investments are not taxed when the money stays in the account. If you can keep the money in the account until you retire the money is then taxed at whatever rate it is currently at. This is perfect for people that want to get below a specific tax bracket.

2. Roth IRA

The next type of IRA is called a Roth IRA. This is a great account for long-term growth. One of the best perks about this account is that any money put in is not taxed. There is no upfront tax as long as you wait until you are retired to take any money out.

Depending on your income will determine if you can put money into a Roth account. You do not get a deduction from your taxes when you contribute to a Roth IRA and that is the downside. This account is great for people that are thinking about long-term growth. They don’t need to worry about what taxes are down the road because it won’t be taxed.


Want Free Money?

  • Aspiration: Want to get spotted a $150 for free? Simply sign up for Aspiration, and the free banking app will give you cash for free, you just relax while it gives you $150 just for opening a new debit card. There’s no catch. This bank account is legit and only takes two minutes to sign up for an account.

3. SEP IRA

The third type of IRA account is called a SEP IRA. This stands for simplified employee pension. It is a traditional IRA and is great for employees. They will get a tax benefit. The earnings are grown completely tax-free and are given out in amounts once the employee is retired. At that time, people are then taxed.

The amount of annual contribution must be less than 25% of the employee annual income. These numbers are different if you are self-employed. This is a great option for small businesses. There is no startup cost to this retirement plan, and it helps the employees.

4. Nondeductible IRA

The next type of IRA account is a Nondeductible IRA. When you contribute to this account, it can only be made from after-tax money and is not deductible. With that said, you can still enjoy it being tax-deferred when it grows. This is perfect for people that don’t qualify for a Roth IRA.

5. Spousal IRA

If one of the spouses does not have an income but still wants to have an IRA, a spousal IRA is a great option. It also works if one of the spouses simply has a low income. They can contribute ten to a Roth or traditional however it is under the umbrella of spousal IRA.

It’s important to note there are some things that need to be done in order to qualify for this. The couple must have a joint tax return. Contributions are also allowed annually of $5500 or under.

This is a great option if one spouse does not work or does not work much and still wants to save for retirement.

6. SIMPLE IRA

The sixth and final IRA we are going to talk about is a SIMPLE IRA. Simple stands for Savings Incentive Match Plan For Employees. This ends up being self-explanatory after you read that. This is like a SEP IRA; however, each employee can contribute through their salary. For example, a certain amount of money can be taken out each paycheck and they never even see it. It just goes straight into their SIMPLE IRA.

One downside to this is that you are not able to contribute as much. An employer is also typically supposed to give 3% to each employee in their account. Like most IRA accounts, there is a penalty if you take it out early. A SIMPLE IRA is higher than most IRA accounts. It is 25% if you take it out earlier.

This option is great for businesses that have less than 100 employees. If you are self-employed, a SEP option would be better for you than a SIMPLE IRA as you can contribute more.

Find the Right IRA Type for You

As you can see, there are many options of IRA accounts out there. The goal is to choose the one that will most benefit you. Although a traditional IRA account may benefit you now, it may not pay off when you go to use it years from now. In comparison, if you want the tax savings now, a traditional option may be perfect for you and allows you to save more money now that can be better for you and your family.

Make sure to write down what you are looking for in an IRA and speak with a professional. Be honest and upfront with them so they can assist you as much as possible. Tell them your salary each year and how much you think you can save that. If you know you are not very good with money, tell them that. They can suggest options that take the money right out of your paychecks, so you don’t even see it. You are saving and planning for retirement without even realizing it.

If you have more questions about the best IRA accounts and which one is right for you, let us know.

GoDescription
aspiration

Want Free Money?
Aspiration

Simply sign up for Aspiration, and the free banking app will give you cash for free, you just relax while it gives you $100 just for opening a new debit card. There’s no catch. This bank account is legit and only takes two minutes to sign up for an account.

Learn more


The Best Apps to Save You Real Money

We are on our phone a lot, right? Wouldn't it make sense to save money with the best money saving apps?

AppAt a glancedownload
aspirationAspiration
★★★★★
Get a $100 bonus at Aspiration when you open and fund an account with $10 or more. Then use your Aspiration debit card to make at least $1,000 worth of cumulative transactions within 60 days of account opening.
CLAIM $100 BONUS
robinhoodRobinhood
★★★★★
Open a new account in the next 24 hours and you could get up to $200 in free stock.
CLAIM FREE STOCK
Truebill reviewTruebill
★★★★★
This free app delivers on its promise to save you money effortlessly. You can use it to lower your bills, cancel unwanted subscriptions and bill negotiations.
SLASH YOUR BILLS

About the author

Brian Meiggs
Brian Meiggs
Brian Meiggs is a personal finance expert, and the founder of My Millennial Guide, a personal finance site helping you put more money in your pocket. He helps millennials follow the smart money in order to increase their earning potential and start building wealth for the the future. He regularly writes about side hustles, investing, and general personal finance topics aimed to help anyone earn more, pay off debt, and reach financial freedom. He has been quoted as a top personal finance blogger in major publications including Yahoo! Finance, NASDAQ, Discover, MSN Money and more.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

On a similar note...

Explore More On

7 Best Bank Bonuses and Promotions of April 2021

ImageDescriptionlearn-more
aspiration★★★★★This Company Will Give You $100 for Opening a Free Account
Boost your savings and earn up to 1.00% APY interest on your savings. Get up to 10% cash back on your purchases. Get $100 bonus when you spend your first $1,000 with your new Aspiration Plus Card.
COLLECT $100 BONUS
personal capital★★★★★
The First and Only Interest Earning Crypto Account
Receive up to $250 Bitcoin bonus when you make qualifying deposits over the first 30 days. Receive up to 8.6% annually on your crypto. Join the most trusted financial services for crypto investors on the market.
CLAIM $250 BONUS
personal capital★★★★★Get Up $200 in Free Stock for Joining
Commission-free stock, ETF and options trades. Get a free stock worth up to $200 when joining (must complete application). Simple, easy to use investor platform with no account minimums.
GET FREE STOCK
sofi★★★★★All-In-One Investing That's Easy to Use
Tired of Robinhood? Invest in stocks, ETFs, crypto, or automated investing in all one app. No commissions for stocks and ETFs. Complimentary access to SoFi Financial Planners.
INVEST NOW
personal capital★★★★★The Smart and Free Way to Manage Your Money
Take control of your finances with the perfect union of technology and highly personalized service. Get access to free online financial tools, including retirement planner, investment checkup, net worth calculator and more. Digital-first wealth management advisor with 24,000 clients in 50 states.
SIGN UP FREE
blooom★★★★★401K and IRA Management
Start your free 401k and IRA management now. Find and reduce hidden fees. Improve your diversification.
GET FREE CHECKUP
cit★★★★★Enjoy the Benefits of a CIT Bank Money Market Account
A CIT Bank Money Market Account helps you get more from your savings with interest rates for maximum growth. Earn over 7x the national average with high-interest rates. It now pays to open a money market account with CIT Bank.
OPEN ACCOUNT
My Millennial Guide