Brokers For IRA Accounts

Different Types of IRA Accounts You Can Own

An IRA, or individual retirement account, is an investment account designed to help investors grow their money in order to support their lifestyles during retirement. There are several different types of IRAs and choosing the appropriate account type to match your long term goals can take some analysis of your personal situation and requirements (as well as potential forecasting). However, a financial adviser coupled with the right broker may be able to help you navigate through the process of planning your retirement, boosting your savings and helping create a strategy that is right for you.

Traditional IRA: A traditional IRA allows individuals to make tax-deferred deposits per year into the account. Under certain circumstances, the amount of money you deposit into your account may be deducted from your adjusted gross income on your tax return, thus reducing the amount of tax you are responsible for. But the greatest tax benefit that applies to all account holders is that an IRA keeps your money tax deferred. When you begin withdrawing your retirement funds from the account after age 59 ½, you will have to pay regular income tax on the money. The one major drawback to this type of account is that if you find yourself having to withdraw the money before age 59 ½, not only will you have to pay income tax, but you will also have to pay a 10% penalty for early withdrawal.

Roth IRA: The Roth IRA is a spin on the traditional IRA and was first offered in 1997 to middle class individuals looking for a better way to save money for the long term. The Roth IRA differs from a traditional IRA in two major aspects. One, the deposits made to the Roth IRA are not tax-deferred, meaning that you must pay income tax on the money you deposit before you deposit it. And secondly, the money can be withdrawn at any time for any reason without taxation or penalties, at least on the principal. You will have to pay income tax on the gains as you withdraw them. The main drawback to the Roth is the income limits. Single filers can make full contributions to the account as long as their annual income does not exceed a certain amount, while married filers cannot have a combined annual income over a particular amount in order to qualify.

Rollover IRA: A rollover IRA can be either a traditional IRA or a Roth IRA. A rollover IRA is simply an IRA that is funded through a transfer of funds from another retirement account (typically an employee sponsored one). A rollover IRA receives its initial funding when you close a 401(k) or other IRA account and move the funds here directly into the rollover account.

SEP-IRA: A SEP IRA is known more formally as a Simplified Employee Pension Individual Retirement Account. This type of IRA is used by business owners as a way to set up a retirement benefit for both the owners and employees. Since these accounts are simply a variation of a traditional IRA, they work in much the same manner.

Understanding which type of IRA is right for your specific circumstances takes some self-assessment. When making a decision, you may want to consult with a retirement planning professional, but this is something you can certainly study on your own. To make the appropriate choices for your retirement investment portfolio, you can select an online discount brokerage that offers IRAs. Those brokers that have banking services may allow you additional flexibility given that they can house multiple account types in your name.