Individual Retirement Accounts (IRAs) are designated retirement savings accounts that allow you to set aside money and offer tax advantages on those funds. There are several different types of IRAs, and they vary based on factors like types of contributions, tax advantages, income requirements and limits, age limits for contributions, and withdrawals. The main difference between them is when you pay income taxes on your contributions to the plan.
Navy Federal offers three types of IRAs: Traditional, Roth and Simplified Employee Pensions (SEPs). You can choose to have just one, or you can utilize all three to meet your savings goals. Traditional and SEP IRAs offer tax deductions for contributions, while Roth IRAs allow you to grow earnings tax-free. With Traditional and SEP IRAs, you pay taxes when you withdraw the money in the retirement plan. With a Roth IRA, you pay taxes at the time you contribute, but the eventual distribution is tax-free as long as you meet certain requirements. Here's a more in-depth look at how these three IRAs compare:
These potentially tax-deferred retirement plans allow you to avoid paying taxes on contributions and earnings until you withdraw. Both deductible contributions and earnings are then taxed at your regular income tax rate.
Contributions can be made as long as you have earned income and you're below the age of 70½ in the tax year the contributions are made.
SEPs allow businesses and self-employed individuals to contribute to retirement plans for themselves and their employees. Available for all business types, SEPs allow both employers and employees to contribute to the account.
SEPs allow tax-deferred contributions. A required minimum distribution is enforced at age 70½.