top of page
Roth IRA, Traditional IRA, SEP IRA… 

Would a Roth IRA help you save money for a secure retirement? How about a SEP IRA or a Traditional IRA? The answer is that each type of individual retirement account has a purpose. The key is figuring out which is right for you.

But first, did you know that about 50% of Americans aren’t saving enough money to continue their current standard of living once they’ve retired? This number is even higher for people who don’t have a 401(k) available to them through their job. 

These numbers are scary, but careful planning can help you avoid this fate.

While there are various ways to save money for retirement, perhaps the most important is an individual retirement account, aside from an employer-sponsored 401(k). IRAs offer terrific advantages for retirement planning, even if you have a 401(k) through your job.

IRAs were introduced in 1974 as a tax-advantaged way for employees who worked for a business that didn’t have a pension program to provide money in retirement. In the nearly 50 years since IRAs began, they’ve evolved and expanded. Today, there are seven types of IRAs: 

  • Traditional IRA

  • Roth IRA


  • Spousal IRA


  • Nondeductible IRA

  • Self-directed IRA 

Here, we’re going to talk about four of the most popular. But before we do, there are a few things we’re asked frequently: 

  1. How much can I contribute to an IRA? All the IRAs we’re discussing, except the SEP, have an annual contribution limit in 2022 of $6,000 or $7,000 if you’re over age 50. 

  2. Can I contribute to an IRA if I currently contribute to a 401(k)? Fortunately, the answer is yes. Both options offer tax-deferred savings for retirement, and if you can take advantage of both, your retirement savings will grow much faster. Also, depending on your income and tax situation, you may be able to take a tax deduction for the amount you contribute to your IRA and 401(k).

  3. When can I contribute to my IRA? You can make contributions to your IRA at any time. You can even make contributions that count for the previous year’s taxes if you do it by April 15 of the following year.

Traditional IRA
A traditional IRA allows you to invest money before taxes, so it grows tax-deferred. This means that when you withdraw money, you pay taxes on the withdrawals at your current income level, which is lower in retirement for many people. A Traditional IRA is best for people who expect to be in the same or a lower tax bracket when they withdraw funds because you end up paying less tax on the money you invest. Traditional IRAs offer you immediate tax benefits because your taxable income is reduced (there are income limitations for those in employer-sponsored plans). You can begin to withdraw money from your Traditional IRA after age 59½ and must begin withdrawals by age 72.


What is a Roth IRA?
Roth IRAs are similar to Traditional IRAs except that a Roth IRA is funded with after-tax dollars instead of pre-tax dollars. With a Roth IRA, your tax advantage is when you withdraw the money, unlike a Traditional IRA when your contributions lower your taxable income. A Roth IRA is best if you expect to be in a higher tax bracket when you begin withdrawing the money because you’ve already paid taxes on your contributions, so withdrawals are tax-free. Like Traditional IRAs, you can start withdrawing from your Roth IRA at age 59½, but there is not a set age for when you must begin making withdrawals.

A SEP or simplified employee pension is a type of traditional IRA but is set up and funded by an employer for employees. The employer receives tax benefits for setting up the SEP. SEP earnings grow tax-free while withdrawals are taxed. One advantage you’ll see with a SEP is that they have a higher annual contribution limit than other retirement accounts (up to 25% of compensation or $61,000 in 2022). SEP IRAs may be an excellent option for you if you’re a sole proprietor because you do not need employees to set one up, they are inexpensive to start and run, and you’re allowed to contribute much larger amounts than other plans.


Spousal IRA
IRS rules say that you must earn income to contribute to an IRA. However, a Spousal IRA is a workaround for married couples where one spouse doesn’t work outside the home or earns a very low income. In 2022, the nonearning spouse can contribute up to $6,000, and those over age 50 can contribute up to $7,000 to a Spousal IRA. Contributions can come from either spouse’s income. 

Maximize Your IRA Contributions 
Remember, the more you contribute to your IRA, the better prepared you will be for retirement. Contact us here to create a plan to maximize your IRA contributions.

We explain the options, who can participate, and who benefits from each 
bottom of page