There are a handful of IRA account types to choose from. Do you feel confident that you’re familiar with the details of those accounts? For a quick overview of each account type, keep reading.
A Simplified Employee Pension Plan, or a SEP IRA, is a retirement plan that’s specifically designed for people with a self-employment income. Like those who are self-employed or are small business owners. A SEP retirement plan can help business owners provide retirement benefits for themselves and their employees. In doing so, you contribute funds to your retirement savings account while reducing your taxable income.
A self-directed IRA can be either a Roth or Traditional account type. It’s the type of account that is as it says, self-directed. You as the owner of the IRA are the one making the investment decisions and directing where your money goes. You’re also able to invest in a wider range of assets with a self-directed IRA, assets that aren’t normally looked at. To sum up what you can invest in with a self-directed IRA is difficult because the possibilities are almost endless, so a list of what’s not allowed is easier. The rules that you have to follow are a little different too, so make sure to familiarize yourself with them before opening an account.
- Life insurance policies
- Investing with disqualified persons
A Roth IRA is the main IRA account types that allow prospective retirees to save after-tax money. At age 59 ½, you’re allowed by law to start taking distributions. Since you have already paid taxes on your money, your withdrawals are tax-free.
Traditional IRAs are similar to Roth IRAs, but instead of money being saved after taxes, your money is saved as tax-deferred. You’re contributing money before taxes are paid. When it comes time for you to retire, and you start taking distributions at age 70 ½, your money is taxed as normal income.