Winter 2010 | Volume 108 | Number 654
Types of IRAs
You'll most often hear reference to the two main types of IRAs – traditional and Roth. But there are actually four different options available:
1) Traditional IRA The classic. You may be able to deduct your contributions to this account on your tax return within certain limits. The earnings grow tax-deferred, though you pay taxes at withdrawal. With this type of IRA, you have a wide range of investment options: mutual funds, annuities and potentially everything from real estate to investments in startup businesses.
2) Roth IRA Like the traditional IRA but with a twist: You can't deduct your contributions up-front, but you pay no taxes at withdrawal, as long as you meet certain conditions, on either your contributions or the money you've earned within the Roth IRA.
3) Simplified Employee Pension Often referred to as a SEP, this type of account is a traditional IRA set up by business owners for themselves and their employees. The government requires business owners to contribute for employees, if the employer makes a contribution to their own account.
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