What Type of IRA Should You Have?

An Individual Retirement Account, or IRA, provides tax-advantaged savings and investment. Traditional IRAs grow their earnings tax-deferred, while Roth IRAs do so tax free.

Determining which IRA account best suits you depends on your unique situation and goals. Individuals looking for more direct control should look towards online brokerages; those who prefer passive investing could explore options like Betterment’s Robo-advisor service.

Traditional IRA

Traditional IRAs are an attractive investment choice for most people, since you can deduct contributions and see growth tax-deferred until retirement. Your traditional IRA may hold stocks, ETFs, mutual funds and real estate as assets to invest in; additionally you may use brokerage companies or robo-advisors to manage it; however there may be limits and minimum distributions that must be observed.

When choosing an IRA, it’s important to keep in mind your financial goals, expected retirement date and risk tolerance. Traditional or Roth IRAs are popular options; however, you could also explore alternative solutions, such as simplified employee pension plans or savings incentive match plans with similar tax and investment benefits to a traditional IRA; furthermore you may even qualify for multiple forms of retirement accounts depending on IRS income limits.

Roth IRA

IRAs are tax-advantaged accounts designed to help people save and invest for retirement, with both pretax (traditional) and posttax (Roth) accounts available to you. Your choices of traditional (pre-tax) or post-tax (Roth) IRA accounts depend on many factors, including contribution limits and tax implications; how your account will be invested also matters greatly – typically invest in assets with gradual yet steady growth, like cash, bonds and CDs; whereas your Roth IRA may include stocks with dividend payments (such as mature companies).

If you prefer taking an active approach to investing, an online broker that lets you select your investments is often best. They usually offer various investment options, sign-up promotions and fees that vary between providers; most brokerage firms and online brokers also provide IRA accounts; some even allow access to a wider array of investment opportunities than regular accounts can.

SEP IRA

SEP IRAs are an appealing retirement savings solution for small business owners and self-employed individuals, as they combine low administrative costs, tax-deductible contributions and flexible investment options into one attractive package. Unfortunately, SEP IRAs come with one key condition which might make them less appealing for larger employers: employers must contribute the same percentage of an employee’s salary to his or her SEP IRA regardless of whether that person was actually employed during any given year.

SEP IRA contributions far surpass traditional IRA contribution limits and even exceed employer-sponsored retirement plans such as 401(k). A SEP IRA also allows you and your employees to choose among an extensive array of investment choices – except collectibles, coins, real estate that provides direct benefit or certain derivative positions. It’s best to compare fees and custodian options before making your selection; some require minimum investments while others have no minimum threshold or fees associated with opening one.

SIMPLE IRA

A SIMPLE IRA is a retirement savings plan offered to employees of small businesses through their employer. Designed specifically to make life simpler for small business owners and managers, setting up and managing this type of plan may be easier and cheaper than establishing traditional or Roth IRAs; similarly it may cost less than other forms of retirement plans like 401(k)s or profit-sharing plans.

Employers offering SIMPLE IRAs are required to either match employee contributions dollar-for-dollar or make a flat contribution of 3% of each eligible employee’s compensation. Employees earning at least $5,000 annually over the last two years and expected to do so in 2018 must be eligible to take part.

As with other types of IRAs, your SIMPLE IRA allows you to choose whether it will be funded with pre-tax money (traditional) or after-tax dollars (Roth). Withdrawals made using pre-tax funds will be taxed as ordinary income when taken out at retirement; but if funded with after-tax dollars any earnings growth you realize will be taxed at a lower rate.