There are four options or types of IRAs you can choose from, but the most common are Traditional IRA and Roth IRA. Discuss with your bank on which type of IRA is right for you.
1. Traditional IRA. In a Traditional IRA, you make contributions with money you may be able to deduct on your tax return and any earnings potentially grow tax-deferred until you withdraw them in retirement.
2. Roth IRA. A Roth IRA is a retirement account in which income after tax is set aside each year and limits are specified as to how much. Earnings also grow tax free and can be withdrawn tax free. In other words, you make contributions with money you’ve already paid taxes on and your money may potentially grow tax-free, with tax-free withdrawals in retirement, provided that certain conditions are met.
A self-directed Roth IRA means that the account holder can just simply decide how to invest the funds.
3. SEP IRA. SEP stands for Simplified Employee Plan. Known as SEP IRA, it is a retirement plan established by an employer. A SEP allows employers to make deductible contributions for employees who participate in the program. The contributions are then made to a Traditional IRA where employers choose how much they want to contribute to a SEP in a given year.
4. SIMPLE IRA. SIMPLE stands for Savings Incentive Match Plan for Employees. A SIMPLE IRA allows employers to plan for their employees’ retirement, and their own. It also allows employees to make salary-reduced contributions and receive matching contributions from their employer. This type of IRA or retirement plan is specifically designed for small businesses with 100 employees or less. An employer who exceeds the 100-employee limit are still eligible to continue the plan for two years.