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Secure your financial future by exploring the best IRA options available. Compare top-rated Roth IRA accounts alongside Traditional IRAs, empowering you to make an informed choice that aligns with your financial goals.
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An IRA, or individual retirement account, is a type of tax-advantaged investment account that you can use to save for retirement. You won’t pay capital gains taxes on any profits you earn from investments inside an IRA.
Anyone can open an IRA account, even if they already have an employer-sponsored retirement plan like a 401(k). You can also open multiple IRA accounts, including different types of IRAs or IRAs at different brokerages.
With a few exceptions, you cannot take money out of an IRA before you turn 59½ years old. If you do make a withdrawal, you’ll have to pay a penalty. So, IRA accounts work best when you plan to leave any money you deposit in the account until you reach retirement.
There are several different types of IRA accounts available, and each is tailored to fit a different set of needs for investors.
Traditional IRA
With a traditional IRA, you contribute pre-tax dollars to your account. When you withdraw money from the account in retirement, you’ll count those withdrawals as income and pay tax on them.
Essentially, a traditional IRA lets you defer some income tax until retirement. This can be a major benefit if you expect to be in a lower income tax bracket during retirement than you are now.
The maximum amount you can contribute to a traditional IRA in 2023 is $6,500, or $7,500 if you are 50 or older.
Roth IRA
With a Roth IRA account, you contribute after-tax dollars to your account but pay no income tax on withdrawals in retirement.
You can use a Roth IRA on its own if you expect to be in a higher tax bracket in retirement. Alternatively, you can use a Roth IRA in combination with a traditional IRA to balance the amount of income tax you pay now versus in retirement.
Another benefit of a Roth IRA is that you can withdraw contributions at any time without penalties. However, you’ll still pay penalties if you withdraw profits from your investment before you turn 59½.
Contribution limits for Roth IRAs are the same as for traditional IRAs.
SEP IRA
A simplified employee pension (SEP) IRA must be set up by an employer for an employee. It is frequently used by self-employed individuals, but small businesses can also use them to provide retirement accounts for employees.
With an SEP IRA, the maximum annual contribution is the lesser of 25% of an employee’s salary or $66,000. The employer must contribute equally, as a percentage of salary, to every employee’s account.
SIMPLE IRA
A Savings Incentive Match Plan for Employees (SIMPLE) IRA is similar to a 401(k) plan but is designed to be easier for small businesses to administer. The annual contribution limit is $15,500. Employers are typically required to make 3% matching contributions or a fixed contribution of 2% of an employee’s salary.
Spousal IRA
Typically, you must have taxable income to contribute to an IRA. However, if you are married and either you or your spouse does not work, the non-working spouse can contribute to a spousal IRA. You must file taxes jointly to open a spousal IRA.
The contribution limit for a spousal IRA is the same as for a traditional or Roth IRA. The benefit is that both you and your spouse can contribute to IRAs, effectively doubling the amount you can save for retirement.
Self-directed IRA
A self-directed IRA enables you to invest in alternative assets like art, real estate, precious metals, and even private companies. These accounts are best suited for experienced investors and high-net-worth individuals. They must be set up by a custodian who specializes in self-directed IRAs.
IRAs have a wide variety of advantages for retirement investors—here are just a few of them.
Tax-free investing
The biggest advantage of an IRA account is that any gains you earn from investments in the account are free from capital gains taxes. You’ll still pay income tax on earnings when you make withdrawals (except with a Roth IRA), but your investment profit itself is not taxed.
This can make a significant difference in how much you can earn for retirement. Instead of paying a portion of investment profits towards taxes each year, you can reinvest all your profits in the market.
Additional retirement savings
Another reason to open an IRA is that it allows you to put away more money in tax-advantaged retirement accounts. If you have an employer-sponsored 401(k), for example, you can contribute the maximum amount to your 401(k) and then contribute additional funds to an IRA.
Income tax management
IRAs can also help by giving you a choice of how to manage the timing of when you pay taxes on income. A traditional IRA allows you to defer income taxes until retirement, when you withdraw money from your account. A Roth IRA allows you to reduce your income tax burden in retirement by paying taxes on your contributions now.
Expanded investment choices
Many employer-sponsored 401(k) plans have a limited selection of investment options, such as a handful of market-tracking exchange-traded funds (ETFs). With an IRA, you can usually invest in any individual stocks, ETFs, mutual funds, and other assets that a broker offers. A self-directed IRA even enables you to invest in assets like fine art and real estate.
In addition to choosing which type of IRA is right for you, you also need to consider where you want to open your IRA account. Different brokers offer different pricing and features for retirement investors.
Here are some of the most important factors to consider.
IRA account options
Most IRA brokers offer traditional and Roth IRAs. If you want to open a spousal, SEP, or SIMPLE IRA, you’ll need to look for brokers that specifically offer these types of IRAs.
Minimum deposit
Many brokers allow you to open an IRA account with no minimum deposit. However, some brokers do require one, so be sure to check when comparing options.
Trading and account fees
A growing number of brokers offer commission-free trading on stocks and ETFs. Some even offer commission-free mutual funds, bonds, and options. Commissions can add up over time, especially for active investors, so a commission-free account can help you do more with your money.
Many brokers charge zero fees to open and maintain an IRA account. However, they may have charges for paper statements, transfers in or out of your account, or other account operations. Check the broker’s full fee schedule before signing up.
Asset choices
Most IRA brokers offer a wide range of United States stocks, ETFs, mutual funds, bonds, and more. But not all brokers have the same assets available for trading. Some offer options trading, others offer international stocks, and others offer penny stocks.
Consider what assets you plan to invest in when choosing a broker for your IRA.
Retirement planning services
Some brokerage firms cater primarily to active and self-directed investors, while others cater more specifically to retirement investors. The latter group may offer services like access to certified financial planners, retirement savings calculators, and goal-oriented portfolios.
A growing number of brokers also offer automated portfolio management tools that can build a portfolio and manage it without requiring you to place trades manually.
Trading platforms and research
Ease of use is important when choosing a broker, especially if you prefer investing to be straightforward. Some brokers provide streamlined investing platforms that are geared toward first-time investors. Others offer more advanced trading platforms that can feel overwhelming for beginners.
Brokers also differ in how much market research they offer investors. If you plan to invest primarily in index funds that track the broader market, you might not need access to research. On the other hand, if you want to invest in individual stocks, in-depth research can be very valuable.
You can open an IRA online or in person with most brokerages. The process to open a Roth IRA is the same as for a traditional IRA, but SEP and SIMPLE IRAs require an employer to open accounts on behalf of employees.
You’ll need to select which type of IRA account you want to open and provide details about yourself, including your name, contact information, date of birth, and social security number. You’ll also have to attest to your investment experience and sign a few regulatory documents.
Once you’ve opened your IRA account, you can typically deposit funds by bank transfer, wire, or mailed check. Keep your account’s annual contribution limit in mind when making deposits.
Setting up an IRA account might seem daunting at first, but it's actually a straightforward process. Here’s a simple guide to get you started, whether you’re interested in a Traditional IRA, Roth IRA, or any other types of IRA.
Determine Your IRA Type: First, decide which type of IRA account best suits your financial goals. Are you looking for the tax-free withdrawals of a Roth IRA, or do you prefer the immediate tax benefits that come with a Traditional IRA? Review the features of each to make an informed decision.
Choose the Right Financial Institution: The best place to open an IRA account isn't one-size-fits-all. Look for institutions that offer the type of IRA you’re interested in, low fees, and investment options that align with your goals. This could be a bank, brokerage, or a mutual fund company.
Open Your IRA Account: Once you've chosen your provider, it's time to open your IRA account. This can often be done online, by filling out an application with your personal and financial information. Make sure you have your Social Security number, bank account information for funding the IRA, and your employment information handy.
Understand Your Investment Options: IRAs offer a wide range of investment choices, from stocks and bonds to ETFs and mutual funds. Some providers also offer Roth IRA accounts that allow investments in alternative assets like real estate or cryptocurrencies.
Fund Your Account: Decide how much you want to contribute and make your initial deposit. Remember, there are annual contribution limits ($6,000 in 2021, or $7,000 if you’re 50 or older). You can fund your IRA through a bank transfer, paycheck deductions, or by rolling over another retirement account.
Set Your Investment Strategy: Whether you’re opening a Roth IRA or a Traditional IRA, it's crucial to have a clear investment strategy. Consider your retirement timeline, risk tolerance, and financial goals. Many providers offer tools and advisors to help you make these decisions.
Monitor and Adjust: Regularly review your IRA’s performance and adjust your investments as needed. Your needs and the market conditions will change over time, so your IRA strategy should be dynamic.
Setting up an IRA is an essential step towards building a secure retirement. By following these steps and choosing the best Roth IRA accounts or Traditional IRA accounts that fit your needs, you're on your way to making the most of your retirement savings.
An IRA account can help you save for retirement and invest without worrying about capital gains taxes. You can use an IRA on its own or in combination with a 401(k). IRAs often offer a wider range of investments than 401(k)s and give you more ways to manage your income tax burden.
Check our IRA broker reviews to find the best traditional IRA accounts and best Roth IRA accounts today.
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²Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.
³ INVESTMENT AND INSURANCE PRODUCTS ARE: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE