An IRA, or Individual Retirement Account, can be a great investment. Knowing which type is right for you, however, is imperative. Here are the five different types of IRA’s to help you better determine which one will best meet your current and future financial and investing needs.
A Traditional IRA is the most common. The maximum annual contribution is $2,000, and whether or not your contributions are tax deductible will depend on your AGI as well as your filing status.
With an Education IRA, you can contribute up to $500 each year. This money is tax free and is disbursed to the beneficiary with preferential tax rules. Only certain education expenses qualify for disbursement, however, so check the rules before applying.
A SEP IRA is established by your employer. Up to 15% of your wages and other compensation may be put into this plan. These plans, also known as Keogh plans, are also popular among people who own sole proprietorships.
A Simple IRA is one of the fastest growing options. It is administered by your employer and allows your employer to establish a retirement plan for each employee. In addition to employer contributions, you can contribute up to 100% of your employers contributions, or $6,500 a year.
A Roth IRA is the last choice. Contributions to these accounts are not tax deductible, but earnings and interest are. These accounts are for people with an AGI below $95,000. There are penalties for early withdrawal, but earnings are tax free upon distribution.
This is only a brief overview of the various types of IRA investment plans, but hopefully this will give you a better idea of which plan might be the most beneficial for you.
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