What is an IRA?
First, you probably want to know what IRA stands for. It’s an Individual Retirement Account, and it’s a way to save money for your retirement in a tax-free vehicle. The most common IRAs are traditional and Roth. A traditional IRA has a contribution limit of $3,000 per year, and you don’t get taxed on this income until you begin withdrawing it at 70½-years-old. A Roth IRA is an IRA that uses already taxed income, but the IRA amount is not taxed when it is withdrawn starting at age 59½.
Different Types of IRAs
Now it’s time to look at some less common forms of IRAs. Several types of IRAs are not established by you, but by a third party. Otherwise, they are identical to traditional or Roth IRAs. These types of IRAs include an individual retirement annuity established by life insurance companies, a group IRA, a simplified employee pension, and a savings incentive matching plan set up by an employer. Many employer-issued IRAs have contributions matched or given by the employer.
A spousal IRA is just what it sounds like—your spouse sets this up for you. There are restrictions, however. Your spouse has to have an annual income of less than $3,000 before they are eligible for this. Rollover IRAs are setup when you want to contribute to your IRA from a 401(k) account. Inherited IRAs are transferred from deceased IRA account holders. And finally, you can get an education IRA specifically geared towards paying for college.
The world of IRAs might be a bit confusing at first, but once you’re aware of the options, you are less likely to make a mistake with your IRA and it will be much easier to choose the proper one for you. You don’t want to be left wanting when it comes to your retirement income, and you’ll certainly want to know exactly what your employer is offering if they have an IRA plan as a part of your benefits package.