An IRA is a simple, tax-advantaged account designed to help you save money for retirement. Most people can deduct some or all of their annual traditional IRA contributions from their taxable income. This can help reduce their tax liability in the year they make contributions. In exchange, withdrawals are considered taxable income.
There are a variety of IRA accounts tailored to the specific needs of different types of retirement savers, including non-working spouses, entrepreneurs and those who prefer to invest in alternative asset classes.
- Spousal IRA. For married couples with one non-working spouse who doesn’t earn income, this type of IRA provides a way for the non-working spouse to fund their own individual retirement account.
- Inherited IRA. Also known as a beneficiary IRA, this account holds assets inherited from the retirement savings of a deceased person. Any person or entity may be the beneficiary of an inherited IRA, although spouses have the most flexibility with this type of account.
- SEP IRA. Small business owners and the self-employed can benefit from SEP IRAs. Businesses with any number of employees may adopt a SEP IRA plan, which offers higher contribution limits than standard IRAs. Generally, only employers are able to contribute to SEP IRAs, however.
- SIMPLE IRA. Businesses with 100 or fewer employees can open SIMPLE IRAs. Unlike SEP IRAs, both employers and employees may contribute to this type of account.
- Self-Directed IRA. Most IRAs only let you buy stocks, bonds, mutual funds, ETFs or CDs. But a self-directed IRA lets you own alternative investments like real estate, cryptocurrencies, precious metals and gold.
- Rollover IRA. This is a standard IRA created to hold funds you’ve rolled over from a workplace retirement plan, like a 401(k). If you’re changing jobs, approaching retirement or becoming self-employed, you might look into a rollover IRA.
What Does IRA Stand For?
IRA stands for Individual Retirement Account. It’s an account that you open, contribute to and own independently with the brokerage of your choice. This gives you greater access and control over your own retirement account than an employer-sponsored retirement plan like a 401(k).
Not every employer offers employer-sponsored retirement options, so IRAs allow people to still save for their retirement regardless of the limitations of their job.
What Is An IRA Rollover?
An IRA rollover is the process of rolling over funds from an existing retirement account into a new one. You can rollover an existing traditional IRA into a traditional IRA, or a traditional 401(k) into a traditional IRA, or a Roth IRA into a Roth IRA.
To avoid a taxable event, the rollover must occur within a set period of time and the money must go from like-to-like accounts. Rolling over a traditional IRA — which is pre-tax — into a Roth IRA — which is post-tax— will incur income taxes on the amount you’re rolling over.