Like 401(k) plans, IRAs can come in a range of different flavors. Savers have different ways to prepare for their futures based on the levels of their income and their tax liability.
There are 3 different types of IRAs: Traditional IRA
Roth IRA
SEP IRA Today we break down the three different types of IRAs:
The Traditional IRA
The traditional IRA is the plan you’re likely to be most familiar with. It works like a traditional 401(k) but with lower contribution limits, with deductions that can phase out as your income rises, and with a free choice of retirement funds.
Like a traditional 401(k), contributions are made pre-tax. The funds then grow and gain in interest without collecting tax liabilities until the payouts begin between the ages of 59.5 and 72. At that age, your income is likely to be lower so the amount of taxes you have to pay should be lower too.
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