Explore what each type of IRA has to offer and then pick the type that is right for your savings needs.
IRA Options
Traditional IRA1
Consider if:
You would like to reduce your taxable income this year, and you don’t plan on making withdrawals until retirement.
Tax Advantages:
Reduces your taxable income in the calendar year for which the deposit is made.
Withdrawals:
Withdrawals are taxable income. Any withdrawals before age 59½ may include a 10% penalty. Withdrawals are mandatory at age 70½.
Contributions:
Contributions may be fully or partially tax deductible. Anyone under age 70 ½ with earned income can contribute.
Roth IRA1
Consider if:
You would like more flexibility for withdrawals, and you want your deposits and earnings to be tax-free at the time of withdrawal.
Tax Advantages:
All earnings grow tax-free, and you don’t pay taxes when you withdraw money, when tax rates can be higher than at the time of deposit.
Withdrawals:
Contributions can be withdrawn anytime with no penalty or taxation. Earnings are tax-free if they’ve been in the account for 5 years or more and you are at least 59½.
Contributions:
Contributions are not tax deductible. Contributions can be made at any age. Eligibility is based on your income.
SEP IRA1
Consider if:
You are self-employed or work for a small business. This account reduces taxable income for the year of the contribution and does not allow withdrawals until retirement.
Tax Advantages:
Reduces your taxable income for the calendar year of the contribution.
Withdrawals:
Withdrawals are taxable income. Any withdrawals before age 59½ may include a 10% penalty. Withdrawals are mandatory at age 70½.
Contributions:
Contributions may be up to the lesser of 25% of income or $56,000 and fully or partially tax deductible. Anyone under age 70 ½ with earned income can contribute.
- IRAs are separately insured from your other savings accounts for up to $250,000 by the National Credit Union Administration (NCUA), a government agency and an additional $250,000 by American Share Insurance (ASI) for a total of $500,000 per individual.
- For specific tax advice, please see a tax professional.
Coverdell Education Savings Account (ESA)
Consider if:
You want to have a tax advantaged education savings for children under 18. Coverdell education savings accounts (ESA’s) are non-deductible contribution accounts
Tax Advantages:
Earnings can grow tax free for eligible education expenses for a child.
Withdrawals:
Funds can be withdrawn tax free for eligible education expenses including tuition, fees, books, supplies, equipment, special needs, room and board for minimum half-time students, and additional categories of K-12 expenses. Funds must be completely distributed by age 30.
Contributions:
Contributions are not tax deductible. Parents, family members, and others may contribute up to $2,000 annually for each child under the age of 18.
