An IRA is a way to invest in your future and save for your retirement. There are four main IRAs all with different advantages.
Four Different IRAs
Contributions to a traditional individual retirement account are usually tax-deductible. When you take money out of the IRA, that is when the withdrawal is taxed at the ordinary income tax rate.
Contributions to a Roth IRA are taxed when putting money into the account. Then any investment gains do not face taxation, as well as any withdrawals from the account, do not face taxation.
SEP (Simplified employee pension) IRAs are for self-employed individuals. This type of IRA is similar to a traditional one in regard to taxation on withdrawals. Owners who have IRAs for employees can deduct contributions but employees cannot contribute.
SIMPLE (Savings incentive match plan) IRAs are also for self-employed people and small businesses. This type of account is also similar to a traditional one in regards to withdrawals. Unlike a SEP account, a SIMPLE account allows employees to contribute (which is tax-deductible) to their account.
Note that there are rules for using an individual retirement account. There are thresholds of how much you can contribute to your IRA. Some thresholds are based on overall income and some are based on a set dollar amount. Also, age can change how much you can contribute as well.
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