Individual Retirement Account (IRA) is a type of individual retirement plan which is offered by many financial institutions. These institutions provide several tax benefits for retirement savings in the US. The term IRA is used to describe both the broader category of individual retirement arrangement as well as individual retirement plans. This is a custodial account which exclusively benefits the taxpayers and their beneficiaries.
Types of IRAs
There are many types of retirement accounts IRA, which are offered by different financial institutions. The types of IRAs are mentioned below:
- Roth IRA: This type of IRA includes the contributions made after tax assets, and the transactions of the IRA do not have any impact on the tax. The withdrawals from such IRAs are usually tax-free.
- Traditional IRA: This type of contribution is generally tax deductible. In this type of retirement accounts IRA, the money is deposited before the tax. The withdrawals at the time of retirement will be taxed as income. The traditional IRA may be referred to as deductible or non-deductible IRA, depending upon the nature of the contribution.
- SEP IRA: This is a type of provision which the employer allows for making the retirement plan contributions into a Traditional retirement accounts IRA. This provision is made in the name of the employee and not to a pension fund in any company’s name.
- Simple IRA: This is a savings incentive plan for the employees who require the employer’s matching contributions. Whenever the employee will make the contribution, the employer will also match the amount. This plan is the same as the 401(k) plan but has a lower contribution limit.
These are the types of retirement accounts IRA, which can only be funded with cash or its equivalents. The total contribution an employee can make cannot exceed $5,500.