Types of IRAs

There are different types of IRAs for individual retirement plans which incorporate various tax advantages that offer efficient retirement savings of the United States taxpayers.  They are all the same, however, in terms of available investment options.

IRA Types

The original Individual Retirement Account was developed and established in 1974. Since then there have come into existence several additional and different types of IRAs which have their own set of IRA rules. Some IRAs may fall under self-provided plans or employer-sponsored accounts.

• Traditional IRA – The contributions to this plan are normally tax-deductible (frequently simplified as “funds deposited before tax” or “contributions accomplished with pre-tax assets”). All transactions as well as earnings within the plan have no tax impact, and distributions at retirement are taxed as earnings. Depending on the type of contribution, a traditional IRA may be called as deductible or non-deductible IRA.
• Roth IRA – This IRA type is different then a traditional IRA and there are different Roth IRA rules that you need to be aware of. The contributions to Roth IRAs are completed with after-tax assets, thus all transactions within the plan have no tax impact, and distributions are commonly tax-free. The main legislative proponent of this retirement plan is the late Senator William V. Roth Jr. of Delaware.  See Choosing The Best IRA For Your Needs:  Traditional Or Roth for more information if you’re struggling with the Roth vs Traditional IRA decision.
• SIMPLE IRA – The Simplified Employee Pension Plan permits both employees and employers to make retirement account contributions with simpler administration and lower contributions. But even though it is called an IRA, it is treated distinctively from Individual Retirement Accounts.
• SEP IRA – This is a retirement plan that authorizes an employer, normally of a small enterprise or a self-employed individual to complete retirement plan contributions into a traditional IRA. The account is named after the employee instead to a pension account in the name of the company.
• Self-Directed IRA – This retirement account lets you as the account holder to acquire investments through your retirement plan.

There are two extra subtypes of IRA accounts, known as the conduit IRA and the rollover IRA, which are deemed as obsolete by the current tax policies since their features have been integrated in traditional IRAs (see IRA Rollover Rules). However, this tax law will expire unless lengthened by the Internal Revenue Service (IRS).