Harmon and Jenny McKinney explain that IRAs are investing tools for retirement for those individuals who are employed and their nonworking spouses. These allow contributions to be made annually up to a specific maximum amount. Contributions to IRAs are sometimes tax deductible. This varies according to an individual’s income and the type of IRA. Within the IRA umbrella there are several different types. These include traditional IRAs, Roth IRAs, SEP IRAs, and many more.

Traditional IRAs

Traditional IRAs function in the same way as a savings plan. Money is invested, often on a regular basis, up to the specific maximum limit. In traditional IRAs, contributions are tax deductible; however, the money entered and earned in an IRA is taxable at the time of withdrawal. After you reach the age of 59 ½ there are no penalties for withdrawals. One must withdraw from the account at the age of 70 ½.

Roth IRAs

The next popular type of IRA is the Roth IRA. This plan was created as part of the 1997 Tax Payer Relief Act. Roth IRAs let individuals invest “after-tax money,” according to Harmon and Jenny McKinney, and free up money from taxes and penalties. You can make a contribution to a Roth IRA but cannot take a deduction for the contribution.

SEP (Simplified Employee Pension) IRAs

SEPs are employer-sponsored plans by which contributions are made to employees’ IRAs, at least to those employees who choose to participate. These are also known as Simple IRAs. One advantage, the McKinneys claim, is that Simple IRAs are funds held entirely for the employee. But this IRA does not provide an adequate retirement for most because the benefits are not that significant.

Why Choose an IRA?

David Wolpe states that individual retirement accounts are a great investment. He points out that the goal of an IRA is to save money for yourself. In addition to this, IRAs provide tremendous tax savings. In fact, Wolpe suggests that unless you can’t afford to invest any money long term, there is no reason not to invest in an IRA. When you are thinking about your retirement or even developing your investment strategy, consider the IRA.