Know about Various Types of Individual Retirement Account

An individual retirement account is a retirement plan account which serves tax advantages in United States for retirement savings.

Individual retirement account was started in 1974 with the authorization of the Employee Retirement Income Security Act (ERISA).

There are different types of IRAs like:

  • Roth IRA: It is named as Roth IRA for its chief legislative sponsor, the late Senator William Roth of Delaware. This is an individual retirement arrangement permitted under the Tax law of the United States. This can invest in generally in common stocks or mutual funds or securities. Its main advantage is tax structure. Within the IRA, all transactions have no tax impact because contributions are made with after tax assets, and withdrawals are generally tax free.
  • Traditional IRA: Contributions are made with pre-tax assets or money is deposited before tax so contributions are often tax-deductible. Within IRA, all transactions and earnings have no tax impact, and withdrawals at retirement are taxed as income. A traditional IRA may be mentioned as a non-deductible IRA or a deductible IRA as its depends on the nature of the contribution.
  • SEP IRA: Simplified Employee Pension Individual Retirement Accounts. Business owners adopt this SEP IRA to offer retirement benefits for business owners and their employees. No need to pay significant costs for self-employed person with no employee. All employees should get same benefits under SEP plan, in case self-employed persons has employees.
  • SIMPLE IRA: Simplified IRA permits employees to set aside money and it is invested for further use. It is a employer-provided tax-advantaged retirement plan in the United States.
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