To help you choose the best IRA option, we have created a list of types along with some pros and cons. This should give you an idea about which type is right for your financial goals:
Roth IRA – this account allows taxes to be paid in advance so that later withdrawals are tax-free. This account is a great way to save for retirement. Unfortunately, tax-deductible contributions are not allowed in this type of IRA, which can have income limits that prevent people from contributing.
Traditional IRA – this type of account does not allow you to withdraw money until retirement, but it can be tax-deductible. When you contribute money into this account, the funds go in pre-tax to be taxed upon withdrawal at your standard rate. The maximum contribution for this type of IRA is $5500 a year.
SEP-IRA – the Simplified Employee Pension Individual Retirement Account is great for self-employed and want a way to save their own money. Nowadays, SEP-IRAs are often paired with a 401(k) plan. This account allows self-employed people to make tax-deductible contributions up to 25% of their income and pay the same taxes as any other person who makes withdrawals from an IRA after retirement age. All funds must be withdrawn by 70 years old, at which point they must be transferred to another IRA or annuity.
SIMPLE IRA – this type of account is similar to the SEP-IRA, but it is geared towards small businesses and self-employed people with less than 100 employees. These accounts also come with some restrictions on contributions.
401(k)s – these accounts are excellent for large businesses and should be paired with a SIMPLE IRA. There are many advantages to 401(k)s, but keep in mind that they limit tax deductions for contributions made by you and your employer.
Most IRAs have the same rules regarding how much you can contribute, what happens if you withdraw money early, and who can open one. You can read more at raremetalblog for more information. The main difference is where your contributions are coming from – some accounts allow for more flexibility than others! For example, SEP-IRA, SIMPLE IRA, and 401(k)s are all considered employer-sponsored because your contributions come from your company.
In conclusion, the best IRA option for you depends on how much money you can save, whether or not your company contributes to one of these accounts and what kind of account is most beneficial for you.