Summary
The most common types of Individual Retirement Accounts (IRAs) are the Traditional IRA and the Roth IRA, with additional variations such as the SEP IRA and SIMPLE IRA designed primarily for self-employed individuals and small business employees.1 Each type differs in how contributions are taxed, how withdrawals are treated, and who is eligible to contribute.1
If you are new to retirement planning, the different types of IRAs can feel confusing at first. Understanding the basic structure of each option can make it easier to see how they may fit into your overall retirement picture.
Traditional and Roth IRAs
The Traditional IRA and Roth IRA are the two primary IRA types used by individuals saving for retirement.1 Both allow you to contribute earned income up to annual limits set by the IRS, but they differ in how taxes apply.1
With a Traditional IRA, contributions may be tax-deductible depending on your income and whether you participate in a workplace retirement plan.1 Investments grow tax-deferred, and withdrawals in retirement are generally taxed as ordinary income.1 Required minimum distributions (RMDs) must begin at a certain age under IRS rules.2
A Roth IRA works differently. Contributions are made with after-tax dollars, meaning they are not deductible.1 However, qualified withdrawals in retirement may be tax-free if certain conditions are met.1 According to the IRS, Roth IRAs are also not subject to required minimum distributions during the original owner’s lifetime.2
SEP and SIMPLE IRAs for Business Owners
SEP IRAs and SIMPLE IRAs are designed primarily for small business owners and self-employed individuals.1 These accounts allow businesses to contribute toward retirement savings for themselves and, in some cases, their employees.1
A SEP IRA (Simplified Employee Pension) is typically funded by employer contributions only.1 It may allow for higher contribution limits compared to Traditional or Roth IRAs, depending on income.1 Contributions are generally tax-deductible to the business, and withdrawals are taxed as income in retirement.1
A SIMPLE IRA (Savings Incentive Match Plan for Employees) allows both employee contributions and required employer contributions.1 SIMPLE IRAs are often used by small employers who want a relatively straightforward retirement plan option.1
Below is a simplified comparison of these IRA types1:
| IRA Type | Who Can Contribute | Tax Treatment of Contributions | Withdrawals in Retirement |
| Traditional IRA | Individuals with earned income | May be tax-deductible | Generally taxed as income |
| Roth IRA | Individuals under income limits | Not tax-deductible | Qualified withdrawals may be tax-free |
| SEP IRA | Employer (including self-employed) | Employer contributions are typically deductible | Generally taxed as income |
| SIMPLE IRA | Employee and employer | Contributions are typically pre-tax | Generally taxed as income |
Each IRA type has its own eligibility rules, contribution limits, and withdrawal guidelines. The structure you choose may depend on your income, employment status, and long-term retirement income expectations.
If you would like to better understand which type of IRA may align with your broader retirement strategy, contact Vantage Point to learn more about your options and how we can help you live retirement boldly and on your terms.
Frequently Asked Questions
1. What does IRA stand for?
IRA stands for Individual Retirement Account, a tax-advantaged account designed to help individuals save for retirement.1
2. What is the difference between tax-deferred and tax-free growth?
Tax-deferred growth means you pay taxes when you withdraw funds later, while tax-free growth means qualified withdrawals may not be subject to federal income tax.3
3. Are there income limits for Roth IRAs?
Yes. The IRS sets income limits that determine whether you can contribute directly to a Roth IRA.1
4. What are required minimum distributions (RMDs)?
RMDs are mandatory withdrawals that must begin at a certain age for Traditional, SEP, and SIMPLE IRAs under IRS rules.2
5. Can someone have more than one type of IRA?
Yes. An individual may hold multiple IRA types, but total annual contributions must stay within IRS limits.1
Citations
- 7 Types of IRAs: Find the Right Account for You, NerdWallet, Accessed February 28, 2026, https://www.nerdwallet.com/retirement/learn/types-of-iras
- Retirement plan and IRA required minimum distributions FAQs, IRS.gov, Accessed February 28, 2026, https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs
- Individual Retirement Account (IRA): What It Is & How It Works, NerdWallet, Accessed February 28, 2026, https://www.nerdwallet.com/retirement/learn/learn-about-ira-accounts
Investment advisory services are offered through Vantage Point Financial, a registered investment adviser. Registration with any regulatory body does not imply any particular level of skill. This material is provided for informational purposes only and should not be construed as investment, tax, or legal advice. Working with a financial planner does not ensure financial success or prevent loss. All investments involve risk, including the possible loss of principal. Past performance does not guarantee future results. The scenarios presented are hypothetical and are intended for illustrative purposes only. They do not reflect actual client results and are not guarantees of future outcomes. Individual results will vary. Certain financial strategies may offer tax advantages, but outcomes depend on individual circumstances and are subject to change due to tax laws and other external factors. Vantage Point Financial does not provide legal or tax advice. Consult a tax professional. Retirement outcomes depend on a variety of factors, including individual savings behavior, market performance, health events, and other considerations. Certain statements herein may reflect the firm’s current views, expectations, or beliefs, which are subject to change without notice. For additional information about our services, fees, and disclosures, please refer to our Form ADV Part 2A, available at https://vantagepoint-financial.com or upon request at no cost.
