Learn how different types of IRAs can help you reach your retirement goals.
If you’re already participating in an employer-sponsored retirement plan and would like to save more, or you don’t currently have access to an employer plan, an IRA can offer more options to save for retirement while also providing tax advantages.
There are several different types of IRAs, however — which come with their own unique eligibility rules and tax considerations — so it may be hard to determine which one is right for you.
We are here to help you understand the role an IRA can potentially play in your overall retirement savings strategy. To get started, here are the basics about the different types of IRAs:
In this article:
What is an IRA?
An IRA, or individual retirement account, is an investment account that can offer tax advantages to the account owner. There are no age limits for eligibility, but you or your spouse must have earned income to contribute to an IRA. Like other retirement plans, early withdrawals from an IRA may be subject to IRS penalties and taxes.
Different types of IRAs
There are four types of IRAs. Each varies in the tax benefits they offer, who is eligible to take advantage of them and whether they are sponsored by an employer or not:
- Traditional IRA
- Roth IRA
- Simplified Employee Pension (SEP) IRA
- Savings Incentive Match Plan for Employees (SIMPLE) IRA
Traditional IRA vs. Roth IRA
Traditional and Roth IRAs are not employer-sponsored retirement accounts, meaning you don’t need to be employed by an organization that offers access to one. You can open these types of IRAs with any brokerage company. Traditional and Roth IRAs differ primarily in their eligibility requirements, and how contributions and withdrawals are taxed.
| Traditional IRA | Roth IRA |
| How are contributions taxed? | Contributions may be tax deductible on your federal income tax return if neither you nor your spouse are covered by a 401(k) plan or another employer-sponsored plan. If you or your spouse are covered by a retirement plan, deductibility depends on your income. You can make a non-deductible IRA contribution regardless of your income. Contributions that are rolled over from a 401(k) to a traditional IRA can be made on a pretax or an after-tax basis. | Contributions must be made on an after-tax basis. Roth IRA contributions are not tax deductible. |
| How are withdrawals taxed? | Withdrawals of deductible contributions and earnings are taxed as ordinary income. | Withdrawals are tax-free, provided certain conditions are met. |
| Age limit to contribute? | There is no age limit, though you must have earned income. | There is no age limit, though you must have earned income. |
| Income limit to contribute? | There are no income limits to contribute to a traditional IRA. However, if you or your spouse are covered by a retirement plan at work, your ability to deduct your contributions depends on your modified adjusted gross income (MAGI) and your income tax filing status. | There are income limits to contribute to a Roth IRA. However, some 401(k) plans may offer a Roth 401(k) option. Or for those above the income limits, an after-tax contribution to a traditional IRA or 401(k) and subsequent Roth conversion (known as a backdoor Roth conversion) may be an alternative solution. |
| Subject to required minimum distributions? | Yes.1 | No. |
| Contribution limit | For the 2025 tax year, the total contribution limit for individuals under age 50 is $7,000 and $8,000 for those age 50+.* | For the 2025 tax year, the total contribution limit for individuals under age 50 is $7,000 and $8,000 for those age 50+.* |
*The contribution limit is the total combined amount you can contribute to both a traditional IRA and Roth IRA.
Roth IRA vs. traditional IRA calculator
Which type of IRA is appropriate for you? Use this tool to run the numbers.
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SEP vs. SIMPLE IRA
SEP and SIMPLE IRAs are employer-sponsored plans, so you need to either be a business owner or work for an employer who is sponsoring a plan to be able to participate.
| SEP | SIMPLE IRA |
| What is it? | Simplified Employee Pension | Savings Incentive Match Plan for Employees |
| What kind of employer offers this plan? | For-profit, nonprofit or government organizations. | For-profit, nonprofit or government organizations with fewer than 100 employees. |
| Who is eligible? | Employees who: - Are aged 21+.
- Have worked for the business in at least three of the last five years.
- Have received at least $750 in compensation in the current year.
An employer can choose to have less restrictive eligibility requirements. | Employees who: - Earned at least $5,000 of compensation in any two previous years of service.
- Anticipate earning at least $5,000 in the current year.
An employer can choose to have less restrictive eligibility requirements. |
| Contribution limit | Your employer can contribute 25% of your salary to a SEP, up to $70,000 in 2025. | For 2025, you can contribute up to $16,500 if you are under age 50 or $20,000 if you are age 50+. Individuals who are ages 60-63 have an additional catch-up for a total of $21,750 You may be able to contribute $17,600 for the regular limit and $21,450 including the age 50+ catch-up limit if your employer has 25 or fewer employees or makes certain employer contributions. Individuals who are ages 60-63 may be able to contribute up to $22,850 under this exception. |
| Considerations | All eligible employees automatically benefit.
You generally cannot make contributions from your salary, as a SEP is an employer-funded plan. Only “SAR-SEP” plans adopted prior to 1997 may allow for salary deferrals.
You must select beneficiaries and choose the investments. Immediate vesting.
Employer contributions are discretionary. | Additional employer contributions are required, as it is an employer-sponsored plan. Your employer will typically make either a 3% match or 2% non-elective contribution on your behalf. If your employer has over 25 employees and wishes to allow higher contribution limits, they must make either a 4% match or a 3% non-elective contribution.
There is a 25% penalty on early withdrawals (prior to age 59 ½) for the first two years of your participating in the SIMPLE IRA plan and a 10% penalty thereafter. |
IRA vs. 401(k)
IRAs primarily differ from 401(k) plans in that 401(k) plans are employer-sponsored plans, whereas IRAs are not. As such, there are significant differences in how these accounts work with contribution limits, early withdrawals and investment offerings, among other features.
| 401(k) | Traditional or Roth IRA |
| Employer-sponsored plan? | Yes. You must be employed by an organization that offers a 401(k). | No. You can open a traditional or Roth IRA through any broker. |
| Age limits? | You typically must be at least 21 years old to contribute to a 401(k), with at least one year of service (working at least 1,000 hours) with your company. Employees who have worked at least 500 hours in the previous two years must also be allowed to participate. | There are no age limits on who can contribute to an IRA, but you must have earned income to contribute. |
| Employer match? | Some employers may match employee contributions to a 401(k). | Traditional and Roth IRAs do not offer matching contributions from an employer. |
| Income limits? | 401(k) contributions generally do not have income limits (although some highly compensated employees may have their contribution amounts reduced). | Traditional IRAs have income limits for deductibility (if you or your spouse have a plan at work). Roth IRAs have income limits for contributions. |
| Contribution limit | For 2025, the maximum employee contribution is $23,500 for those under age 50 and $31,000 for those age 50+.2 Individuals ages 60-63 may be able to contribute up to $34,750. | For 2025, the maximum individual contribution for both Roth and traditional IRAs is $7,000 for those under age 50 and $8,000 for those age 50+. |
Investment offerings | 401(k) participants are limited to the plan's available investment options | IRAs typically have more investment choices than a 401(k). |
Early withdrawal | You generally can't take a withdrawal from a 401(k) unless you leave your employer (or qualify for a hardship distribution). However, some 401(k) plans do allow you to borrow against the funds in your account. | You can take a withdrawal from a traditional or Roth IRA account at any time. However, taxes and penalties may apply. |
How can an IRA help you on your retirement savings journey?
We can help you evaluate the different types of retirement accounts and determine which may be appropriate for you depending on your personal situation and goals.