What Are the 3 Types of IRAs?
An Individual Retirement Account (IRA) allows you to save for retirement tax-deductibly with tax-deferred contributions, offering the freedom of investing in CDs, mutual funds and stocks as part of an IRA custodian’s permitted investments.
IRAs are great options for anyone without access to an employer-provided retirement plan or looking to bolster their 401(k). Depending on your income level, you could even qualify to contribute towards either a Traditional or Roth IRA.
Traditional IRAs enable your funds to grow tax-deferred, making them especially helpful if you’re near retirement and planning on withdrawing it during that period. When withdrawing it later on, any income taxes due will apply at their normal rates.
Contributions made to a traditional IRA may be eligible for tax deduction, depending on your circumstances and income levels. Deductions become less substantial with increased earnings.
Individuals who are self-employed or run small businesses may open a Simplified Employee Pension (SEP) or SIMPLE IRA for themselves. These accounts offer all the same advantages of traditional IRAs while allowing you to deduct contributions made yourself and/or through employer contributions.
IRAs provide tax advantages for retirement savings. Contributions are tax-deductible, while earnings and withdrawals won’t be taxed until you take them out.
Consider your financial goals, timeline and risk tolerance before choosing between Roth or traditional accounts. Look for banks or brokerages offering various IRA options when searching for an institution offering both Roth or traditional accounts.
If you are self-employed, consider an SEP IRA or SIMPLE IRA as these will allow for payroll deductions and employer contributions to make these retirement accounts even more valuable. Furthermore, opening a rollover IRA to transfer money from previous employer-sponsored plans like 401(k)s or 403(bs) can also help. Those aged 50 or over may even qualify for additional catch-up contributions.
SEP IRAs are perfect for small-business owners who cannot afford the startup costs associated with traditional retirement plans. A SEP allows you to increase your retirement fund while taking advantage of tax deductions for contributions made on behalf of eligible employees that satisfy IRS guidelines.
Contribution limits for Roth IRAs are higher than traditional IRAs; however, you must abide by certain additional rules; for instance, your contribution percentage must be uniform among eligible employees and you should contribute based on what they earned during the year.
Distributions from Roth IRAs are subject to taxes as per traditional IRAs, with early withdrawal penalties applied at 10% if under age 59 1/2. Your funds can be invested in various assets including mutual funds, stocks, bonds, ETFs and FDIC-insured CDs.
Money Market IRA
Individual Retirement Accounts (IRAs) offer tax advantages that cannot be found through traditional brokerage accounts. Each type of IRA varies in terms of eligibility requirements and contribution limits, making an IRA an appropriate savings tool depending on your savings goals and retirement needs.
As an example, SEP IRAs are tailored for small business owners who don’t wish to incur the startup and operating costs associated with offering regular retirement plans to their employees, yet still want an IRA solution for themselves. But SEP IRA rules must be strictly observed so as not to run into trouble with the IRS. A SIMPLE IRA provides tax savings for small-business owners with few employees because withdrawals from this type of account are taxed at your ordinary income rate after reaching age 59 1/2.
Fixed-Rate IRA CDS
Navy Federal offers various IRA accounts designed to meet your savings and investment goals, from traditional to Roth. Traditional accounts feature tax withdrawals while Roth IRAs allow contributions made with post-tax money to grow tax free.
Fixed-rate IRA CDs are an IRA version of certificate of deposit (CD). Like regular CDs, fixed-rate IRA CDs require you to deposit funds for a specified term — typically three months to 10 years — at which you will earn a guaranteed rate of return over this time period and can even be renewed upon its conclusion.
IRA CDs offer low-risk investments with FDIC coverage that could help your IRA funds to grow over time. Furthermore, you could open money market or variable interest rate IRA accounts for greater flexibility and diversification.