IRAs, or individual retirement accounts, are a great tool to help you reach your retirement goals. When you are planning your retirement, it is crucial to learn about the different types of savings accounts available to you and the benefits that having an IRA can bring. Here we’ve compiled some basic IRA information to help in deciding if an IRA is right for you!
Defining an IRA
IRAs are a common retirement savings tool in the United States and are offered by most financial institutions. Many employers even have systems in place where employees can easily contribute a set amount to their IRA savings each pay period!
Most people are only aware of Traditional IRAs and Roth IRAs, but many additional types exist. Some other common IRAs include Rollover IRAs, Inherited IRAs, Custodial IRAs, and SEP IRAs.
Traditional IRA
- Contributions to a Traditional IRA may be tax-deductible.
- Traditional IRAs have no income limitations.
- Any withdrawals of pre-tax earnings or contributions are taxed like income during retirement.
Roth IRA
- Contributions to a Roth IRA are not tax-deductible.
- Roth IRAs do have some income limitations.
- Most withdrawals are both tax and penalty-free if you are over age 59 and six months and if the account is over five years old.
Rollover IRA
- Rollover IRAs provide an alternative to a 401(k) that may provide more choices and require lower fees.
- Funds grow with a tax advantage, even after transfer.
- Rollover IRAs require no taxes or penalties when you transfer the account.
Inherited IRA
- Inherited IRAs are only for individuals who inherited a Traditional or Roth IRA.
- Inherited IRAs are not eligible for tax-deductible contributions or IRA conversions.
- Account liquidation or annual distributions of the account balance is required within a pre-set period.
Custodial IRA
- Custodial IRAs can be a Traditional or Roth IRA, held by a parent for children under age 18 who earn income.
- Custodial IRAs may be used to pay for higher education expenses.
SEP IRA
- SEP IRAs are best for small business owners or those who are self-employed with few or no employees.
- SEP IRAs are entirely funded by the business owner, but policies are owned by the employees.
- Withdrawals from SEP IRAs are taxed as normal income.
Benefits of an IRA
Not only can IRAs help you reach your retirement savings goals, but they can also provide tax and income benefits. Interest in an IRA compounds year after year, which increases the amount of overall retirement savings drastically over a long period. Some IRAs may also allow you the choice to defer taxes on the money they are contributing or to have tax-free withdrawals later, so long as certain conditions are met.
Tax-deductible IRA contributions can also lower one’s adjusted gross income (AGI), which may affect your tax rate and how certain itemized tax deductions are calculated. If you already have more than one retirement account, you may be able to consolidate qualifying accounts into a new IRS to protect your retirement funds while still contributing to your future.
Factors to Consider When Deciding if an IRA is Right for You
If you’re between 35 and 55, retirement planning is likely one of your top priorities—but with so many options, deciding if an IRA fits your financial strategy can feel overwhelming. You’re at a stage where every dollar saved today can grow significantly by retirement, so choosing the right account matters. Here’s what you need to weigh before opening an IRA.
Your Current vs. Future Tax Situation – Taxes don’t disappear in retirement—they just change. The big question: Will you pay more or less in taxes later? If you’re unsure, we may be able to help.
- Traditional IRA: If you’re in your peak earning years (and in a higher tax bracket now), a Traditional IRA lets you deduct contributions today and defer taxes until retirement—ideal if you expect to be in a lower tax bracket later.
- Roth IRA: If you think tax rates will rise (or you’ll be in a higher bracket later), paying taxes now with a Roth IRA means tax-free withdrawals in retirement. This is especially valuable if you’re early in your career or expect significant income growth.
Income and Contribution Limits
- Single filers:
- Phase-out starts at $150,000
- Partial contributions allowed between $150,000 and $165,000
- No contributions allowed above $165,000
- Married filing jointly:
- Phase-out starts at $236,000
- Partial contributions allowed between $236,000 and $246,000
- No contributions allowed above $246,000
Traditional IRA Deduction Limits (2025)
If you (or your spouse) have a workplace retirement plan like a 401(k), your ability to deduct contributions phases out at higher incomes.
- Single filers:
- Phase-out starts at $79,000.
- Partial deductions are allowed between $79,000 and $89,000.
- Married filing jointly:
- Phase-out starts at $126,000.
- Partial deductions allowed between $126,000 and $146,00.
Employer Retirement Plans (Like a 401(k)) – Should You Still Use an IRA? – If your employer offers a 401(k) with matching contributions, always contribute enough to get the full match—that’s free money you don’t want to miss. But an IRA can still be a smart add-on because:
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- More investment choices (401(k)s often have limited fund options).
- Lower fees (some 401(k)s have high administrative costs).
- Extra tax-advantaged space (if you’ve maxed out your 401(k)).
Investment Flexibility – Control Over Your Money – IRAs give you far more investment freedom than most workplace plans. Instead of being stuck with a handful of mutual funds, you can invest in:
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- Individual stocks & bonds
- ETFs (low-cost index funds)
- REITs (real estate exposure)
- Even alternative assets like gold (in a self-directed IRA)
Early Withdrawal Rules – What If You Need the Money Soon? – Life happens—and sometimes you need cash before retirement. Here’s how IRAs compare:
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- Roth IRA: You can withdraw your contributions (not earnings) anytime, tax-and-penalty-free.
- Traditional IRA: Withdrawals before 59½ usually trigger a 10% penalty + income taxes, with few exceptions (first-time home purchase, medical expenses, higher education).
Required Minimum Distributions (RMDs) – Forced Withdrawals in Retirement – One major difference between Traditional and Roth IRAs:
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- Traditional IRA: You must start taking withdrawals at age 73 (as of 2023), whether you need the money or not. These withdrawals are taxed as income.
- Roth IRA: No RMDs during your lifetime—you can leave the money growing tax-free as long as you want, making it a great estate-planning tool.
Click here to read more about IRAs and 401ks.
Final Thoughts
Retirement planning is personal. There is no one-size-fits-all approach. The right IRA for you depends on your income, tax considerations, and long-term financial goals. Whether you want to lower your tax burden now with a Traditional IRA or enjoy tax-free withdrawals later with a Roth IRA, your choice will shape your financial future. But you don’t have to navigate this alone. We’re here to help simplify the process. Give us a call, and let’s find the best solution.
Life Insurance Questions?
We hope this information helps you in deciding if an IRA is right for you! This information was updated on April 14, 2025.
If you’d like to learn how we can help you plan your retirement, call Empower Brokerage to speak to one of our Life and Annuity experts at (888) 539-1633.
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This article was updated on 4/14/2025.