The Many Types of IRA Investing & How to Choose Yours

piggy bank and IRA text on wood

Ready to start making smart financial decisions for your future? If yes, then it means you’re ready to set up a great retirement account and start saving. Of course, things aren’t that simple, as they never are, because you will be faced with some decisions to make once you finally realize that it’s time to start investing in your future. In short, you’ll need to figure out which particular account to set up for your savings.

Now, you’ve heard of the Individual Retirement Accounts already, and you love the flexibility and the control those provide you over your own assets and savings. So, you know that this is the account you want, but that is not all. In case you didn’t know, there are many IRA options to choose among, that is, different account types you can go for, meaning you’ll need to be a bit more patient and dig a bit deeper for information, so as to finally be able to make your choice. What is it precisely what you have to do, thus?

Well, in short, you have to get familiar with the many types of IRA investing, as well as understand what to do so as to choose the best option for yourself. Those are, fortunately, the topics that we will be dealing with today. So, below you will find out about the different types of Individual Retirement Accounts and learn how they work, which will undoubtedly help you make your final choice. Of course, we’ll also discuss the things you should consider when trying to make that choice, hoping to make everything easier for you.

Types of IRA

As mentioned, there are various different types of IRA to consider. Let us have a look at those. I’ll provide you with brief overviews of the types, so that you can get a completely clear picture on how they all work and thus start forming some personal ideas as to which one you would like to choose.

stack money and piggy bank

  • Traditional

The Traditional IRA allows individuals to make tax-deductible contributions. And the earnings grow tax-deferred until withdrawal. The withdrawals are then taxed as ordinary income in retirement. If you’re looking for higher contribution limits, upfront tax benefits, as well as flexibility in investment opportunities, then this is the account you should go for. 

  • Roth

In this account, the contributions are made with after-tax dollars, but the withdrawals in retirement are tax free. The contributions are subject to income limits and, the important thing to know is that there are penalties for early withdrawals, meaning you have to be at least 59 and a half in order to withdraw without facing penalties. These are ideal for individuals looking for tax-free growth and income opportunities, as well as for estate planning benefits.

Here’s some more information about this particular type: 

  • Simple

The Savings Incentive Match Plan for Employees, or the SIMPLE IRA, is actually an employee sponsored retirement plan. It is designed for businesses that have less than 100 employees, and it features mandatory employer matching contributions. Just like in the above option, early withdrawals are subject to penalties. This particular solution is perfect for small business employees that want lower administrative costs and employer matching contributions.

  • Sep

Simplified Employee Pension (SEP) IRAs are also employer sponsored plans created for small businesses and for self-employed individuals. Employer contributions have to be in proportional for all eligible employees, and they are discretionary. The SEP IRAs are ideal for small business owners and for self-employed individuals that are looking for simplified administration and for higher contribution limits.

simple IRA written on piggy bank

  • Sdira

Now, here is an account that allows for investments that no other account allows for. In short, a self-directed IRA, or a SDIRA, offers investment opportunities that go beyond the traditional bonds, stocks and mutual funds. Through them, you can invest in real estate, precious metals, as well as cryptocurrencies. Those non-traditional assets often come with custodial fees, but they are worth paying given the opportunity to diversify your portfolio with, say, gold, or another stable asset that is bound to keep your finances secure. If you are an experienced investor and you want to have greater control over your asset allocation and investment choices, then this is the account you should set up. 

  • Spousal

According to the IRS, in order to be eligible for an IRA, you need to be earning income. There is, however, a way around this if you are married. Basically, a spousal IRA allows the earning partner to make contributions to the spouse’s Roth or Traditional IRA. Of course, there are requirements you have to meet so as to be eligible for this option, but the good news is that it is possible, and it can come quite in handy in certain situations.

How to Choose Yours

The above are some of the IRA types that you should consider when trying to find the perfect retirement savings option for you. Chances are, though, that you are now wondering what it is that you should keep in mind in order to make the right choice. After all, you can’t just randomly select one of the accounts and hope that you’ve done the best thing. Instead, you need to be much more careful, so let me tell you what it is that you should take into account here.

First off, consider the specific retirement goals you want to achieve, as well as your risk tolerance and the current financial situation. Then, make sure to assess the tax implications of all the different IRA options, so as to be able to select the option that aligns perfectly with your tax strategy. Of course, you’ll also need to take into consideration the contribution and withdrawal rules, as well as the flexibility you want to get when it comes to the investment choices you can make, that is, the assets you can invest in. If you’re finding it difficult to make up your mind even after considering all of those factors, it would be best for you to hire a financial advisor and let the professional help you decide.

Disclaimer: This article contains sponsored marketing content. It is intended for promotional purposes and should not be considered as an endorsement or recommendation by our website. Readers are encouraged to conduct their own research and exercise their own judgment before making any decisions based on the information provided in this article.


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