IRAs Explained

IRA basically refers to an investment account in which a person can set aside income up to a specific amount each year and usually the contributions get deducted from taxable income and interest also being tax-deferred until retirement. In other words, an Individual Retirement Account is a retirement plan account that provides tax advantages for retirement savings.

There exists various types of IRA's which may be either employer provided plans or self-provided plans, among which some common IRA's are as mentioned below.

• Traditional IRA – The traditional IRA's contributions are often tax-deductible, simplified as "money is deposited before tax" or "contributions are made with pre-tax assets"). All transactions and earnings within the IRA are tax-free, and withdrawals at retirement are taxed as income. The traditional IRA also has more restrictions on withdrawals than a Roth IRA.

• An IRA for Small Business - The Simplified Employee Pension Plan (SEP) enable small businesses to provide retirement benefits with lower costs and less reporting requirements than other qualified retirement plans. SEPs offer some attractive benefits for employers and employees alike.

• Roth IRA - Named after Senator William Roth, contributions are made with after-tax assets, all transactions within the IRA are tax-free, and withdrawals are usually tax-free.

• SEP IRA - A provision that allows an employer (typically a small business or self-employed individual) to make retirement plan contributions into a Traditional IRA established in the employee's name, instead of a pension fund account in the company's name.

• Self-Directed IRA - A self-directed IRA permits the account holder to make investments on behalf of the retirement plan.