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What Does IRA Stand For?

The abbreviation IRA stands for Individual Retirement Account or Individual Retirement Arrangement. There are four basic types of IRAs designed to help people set aside money for retirement. Each type of IRA has different advantages and limitations.

Keep reading to learn about each type of IRA and which option is best for you.

How Does an IRA Help Me Save for Retirement?

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Now that you know what IRA stands for, you may be wondering how IRAs help you save for retirement. Social Security benefits and funds from an employer pension plans may not be enough to support a comfortable retirement. IRAs offer a tax-advantaged method that allow you to save money and supplement your retirement income.

Different Types of IRAs

Here is a breakdown of the four different types of IRAs:

1. Traditional IRAs

Traditional IRAs are tax-deferred arrangements that allow you to deduct some or all of your annual contributions from your taxable income.

However, you must pay taxes on your withdrawals, which can begin as early as age 59 ½ without penalties. With a Traditional IRA, you must begin making withdrawals at age 70 ½.

2. Roth IRAs

A Roth IRA gives you a little more freedom with your money. You can choose your IRA portfolio and make withdrawals on your contributions at any time after 59 ½ without penalty. Your contributions are not tax deductible, but your withdrawals are tax-free.

3. SEP IRAs

Simplified Employee Pension (SEP) IRAs allow small business owners to offer retirement plans to their employees. In this arrangement, tax-deductible contributions are made by the employers into traditional IRAs held in the employee’s name. These contributions may be higher than those made with a traditional IRA.

4. SIMPLE IRAs

SIMPLE (Savings Incentive Match Plan for Employees) IRAs allow employees to make tax-deductible contributions to their retirement account.

Those contributions are matched by their employer, either dollar-for-dollar or by matching up to 3% of salary. The employer contributes 2% of the employee’s salary even if employees make no contributions.

Note that Synchrony Bank does not administer SEP or SIMPLE IRA plans. However, funds in these plans can be transferred to Synchrony Bank and placed in a Traditional IRA.

Learn More About IRAs at Synchrony Bank

Now that you are familiar with the different types of IRAs, you can decide which type of IRA will work best for you. Synchrony Bank does not provide tax advice so be sure to contact your tax advisor or financial consultant before opening or contributing to an IRA.

Call us today at 1-844-345-5789 to learn more about Synchrony Bank’s IRAs, which feature low minimum deposits, award-winning customer service, and FDIC insurance up to $250,000 per depositor for each ownership category.

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Sources:

IRS: https://www.irs.gov/retirement-plans/individual-retirement-arrangements-iras-1


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