4 Major Types of IRA Accounts: How to Find the Right One for You

Post-retirement life’s primary need is financial stability. To make it sure, the best solution is to open an IRA account and start saving money. 

Looking for the most effective IRA that can benefit you in retirement? If that’s the case, prioritize familiarizing yourself with major types of IRAs so you can make an informed decision. 

Let’s take a look at the four major types of IRA accounts below. 

1. Traditional IRA

The traditional IRA remains the most widely used individual tax-advantaged retirement savings account. What makes a traditional IRA an ideal option is that contributions may be tax-deductible. This means that you can lower your taxable income for the year in which you contribute. 

The funds in a traditional IRA grow tax-deferred until you withdraw them during retirement, at which point they are taxed as ordinary income. This option is ideal for individuals anticipating retirement in a lower tax bracket.

1. Roth IRA

Unlike a traditional IRA, contributions to a Roth IRA account are made with after-tax dollars. This implies that you won’t be able to deduct your contributions. However, your money grows tax-free. Not just that, your qualifying withdrawals during the retirement tenure are also tax-free. 

Especially for younger savers or those who expect to be in a higher tax bracket in the near future, Roth IRAs can be a valuable option. The flexibility and tax-free growth regarding withdrawals make the Roth IRA an exceptional money-saving tool. 

Intending to open a Roth IRA account for your retirement savings and maximize its growth potential? Wondering whether the Roth IRA match is valid for your financial security? If so, browse the official SoFi website to learn all about Roth IRAs. 

1. SEP IRA (Simplified Employee Pension)

Designed primarily for self-employed individuals and small business owners, a SEP IRA is another effective retirement savings account. These IRAs allow for higher contribution limits than traditional and Roth IRAs. 

Employers can contribute up to 25% of an employee’s compensation, up to a maximum limit set by the IRS. This type of IRA is excellent for those looking to save a substantial portion of their income while benefiting from tax-deferred growth.

1. SIMPLE IRA (Savings Incentive Match Plan for Employees)

This plan is geared towards small businesses and offers an easy way for employees to save for retirement. Both employers and employees can contribute. However, the employer required to match employee contributions up to a certain limit. 

This account is attractive for small business owners who want to provide retirement benefits to their employees while still enjoying tax advantages.

Final Words 

The selection of the right IRA account heavily relies on a variety of factors, including your income level, employment status, and retirement goals. 

It’s necessary to consider how each type of IRA suits your overall financial strategy. Once you are aware of all the ins and outs of IRAs, choose a suitable account and start saving money for your post-retirement life.