Different Types of Retirement IRA’s
There are a variety of different types of retirement IRAs right now. There are the traditional IRA, the Roth IRA, Spousal, SEP, nondeductible, and self-directed IRAs that you can invest in. There are great aspects of each, you must decide which one is the best for you. You need to also make sure you read reviews, and be assured they are a reputable company. If you look at the IRA Investing home page you will also be able to get information that is valuable when deciding what steps to take.
There are many types of IRAs that are listed below, but not all of them. Because you will still have expenses after you retire, you do not want to run out of money in retirement, so you must make sure you are saving money in some type of IRA. Check out the IRAs below to see which one you like best.
The Traditional IRA
The traditional IRA is the oldest type of IRA account and is still the most popular of them all. There are many benefits to the traditional IRA, including tax benefits that you can access.
- To begin with, you get six thousand dollars up front, and if you are over fifty, you get an additional one thousand dollars.
- Your investment dollars are not taxed as long as you keep them in your IRA.
- If you withdraw any money from your account, it will be taxed at your current amount.
This type of IRA is best for people are in a higher tax bracket now and will be in a lower tax rate after retirement. This type is also best for people who do not have a retirement account provided by your workplace.
Roth IRA
The Roth IRA saves you taxes over the traditional IRA, having these features that stand out:
- These are not deductible and there are no upfront tax breaks, but withdrawals are free and not taxable.
- The maximum that you can contribute to the Roth IRA $6,000, or $7,000 if you are over fifty years old.
- Roth IRAs are easier and cheaper to withdraw from because there are no taxes or penalties of your contribution at any time.
The Roth IRA is best for people who are going to have a higher tax bracket after retirement so that they can take advantage of the tax-free withdrawals. It also better than the traditional IRA if you need to get any of that money before your retirement.
SEP IRA
This is a simplified employee pension, a type of traditional IRA that is set up by the employer for the employee. The employer also funds the SEP IRA and gets tax benefits for providing it to employees.
- You can contribute much more with this type of IRA, up to twenty-five per cent, or up to fifty-eight thousand dollars, whichever is less.
- An employer contributes an equal percentage of money based on the employee’s salary to all employee accounts, including their own.
- The size of the contribution can be different each year, based on the cash flow of the business, but must be the same for all employees.
- Employees cannot contribute to the account through salary deferral, they must have worked for the employer in at least three years of the last five years and must have earned at least six hundred dollars in compensation for year to be eligible for this.
- Sole proprietors can start a SEP IRA for themselves.
- There are no catch-up contributions for those fifty years old and older.
This type of IRA is best for small businesses who do not want the startup and organizational costs of a traditional IRA. They also have the ability to make their retirement money larger and get a tax deduction on any contributions made for the employees.
Self-Directed IRA
Self-directed IRAs have the same rules as the traditional IRA and the Roth IRA except that you can contribute things other than money to the account. This can include real estate, gold, bitcoin, and privately owned companies. Find out more about bitcoin at the website: https://www.investopedia.com/terms/b/bitcoin.asp.
- Setting up a self-directed IRA requires a trustee or custodian that specializes in these lesser-known types of investments that you are interested in keeping in your account.
- Collectibles and life insurance policies are not allowed by the IRS.
- There are many things that are prohibited by the IRS, including self-dealing transactions such as mowing the lawn and fixing items in a home held by the IRA. Those types of things can cause taxes and penalties on the entire account.
The self-directed IRA is best for those who know how to invest and are good at it. If you need more information about the penalties and taxes that can be involved, check out the IRS website here.
These are just some of the retirement IRAs that you can have to protect your retirement. These will all benefit you in different ways.