Get the Best Investment Offers with Your IRA

• Individual retirement accounts (IRAs) have many advantages.
• The investments held in them are protected by federal rules, there are tax deductions for contributions, and the money grows tax-deferred until it's withdrawn.
• As can be set up with a brokerage firm or mutual fund company, and may be limited to what those companies offer. However, investors have options to diversify their IRA holdings.

Individual retirement accounts (IRAs) have many advantages. The investments held in them are protected by federal rules, there are tax deductions for contributions, and the money grows tax-deferred until it's withdrawn.
But IRAs also have drawbacks, one of which is that investors are often limited to what brokerage firms and mutual fund companies have to offer.

Getting the Best Investment Offers with Your IRA

IRAs offer tax-advantaged savings. If you contribute to an IRA, the money you contribute will be tax deductible. That means you'll pay tax on your contributions only, not on any gains you accumulate.
In addition, you won't pay any capital gains tax on your investments.
Taking full advantage of an IRA requires paying attention to a few rules. The IRS has specific guidelines for what you can and can't invest in with your IRA.

What Is a Traditional IRA?

A Traditional IRA is a tax-advantaged savings plan that you can set up with an IRA provider. Funds you deposit into the account grow tax-deferred until you withdraw them or reach the age of 701⁄2, at which point you must begin taking Required Minimum Distributions (RMDs).

How to Set Up an IRA

There are a couple of ways to set yourself up with an IRA account, and in most cases, it will depend on how much money you want to invest.
Investing in an IRA account is similar to investing in a brokerage account, but there are a few differences. One of the benefits of an IRA account is that it allows you to set up automatic investments. This can help you invest regularly and stay on track with your goal.
Another difference is that the fees that are charged on an IRA account are not tax deductible. However, many IRA accounts offer lower fees than a regular brokerage account.

Types of IRAs

There are two types of IRAs: Traditional and Roth. Traditional IRAs are tax-deductible, which means you can deduct part of your retirement savings from your taxable income. You pay income taxes on withdrawals in retirement.
Roth IRAs are tax-free. This means you don't pay taxes on your retirement savings when you make withdrawals in retirement.

Roth IRA

The Roth IRA is a type of retirement account that allows investors to earn tax-free income after retirement. Investors can deduct contributions on their tax returns. Investors should consider the Roth IRA option for their IRA investments in order to benefit from tax-free income on their investments.

Traditional IRA

For investors already saving in a traditional IRA, investing in real estate through an IRA is a no-brainer. Investors can invest in real estate and other passive, nontraded REITs with their IRA.

In 2019, the IRS allowed nontraded REITs to feature in their list of allowable investments for IRAs, as long as they are sponsored by a 401(k) plan. The IRS added the nontraded REIT list after citing concerns over investors being subject to high fees in nontraded REITs.

A 401(k) plan sponsor can sponsor a nontraded REIT, as long as the following requirements are met:
The sponsor:
Is sponsored by a 401(k) plan
Is an entity with fewer than 100 participants
Is not a member of the same controlled group as a 401(k) plan sponsor
Is not an "eligible employer"
Has not sponsored a nontraded REIT in the previous 12 months
Has not had a 12-month period with net redemptions in the previous 36 months
Is not an ERISA plan
Has not sponsored a plan in the previous 12 months
Has not had a 12-month period with net redemptions in the previous 36 months
Has not had a 12-month period with net redemptions in the previous 36 months

SEP IRA

A SEP plan is a retirement plan that allows a business owner to contribute a specific amount each year. For 2018, the IRS gave a 25% contribution cap with a 20% contribution maximum for employees who don't have a retirement plan from their employer.

SIMPLE IRA

SIMPLE IRAs are employer-sponsored IRAs, meaning that they are funded with pre-tax dollars. SIMPLE IRAs have a few key differences from a traditional IRA.
First, contributions are made through payroll deductions. Contributions are allocated between a traditional IRA and SIMPLE IRA, and the employee has the option to opt for a SIMPLE IRA.
Second, contributions are limited to $12,500 in 2019, and the employer must match this contribution dollar for dollar.
Third, distributions from both traditional and SIMPLE IRAs must begin by age 70 1/2.
Finally, if a SIMPLE IRA owner leaves employment, the SIMPLE IRA must be rolled into a Roth IRA, and the money can be distributed from the IRA, tax free, if the individual is at least 59 1/2 years old.
SEP IRA
SEP IRAs are similar to SIMPLE IRAs, except that the contributions are made by an employer, and the employee has no say in the type of IRA that is selected.

Other Types of IRAs

A traditional IRA, or a Roth IRA, will allow you to contribute a set amount each year, but each IRA has unique rules.
A Roth IRA is different from a traditional IRA because it allows you to contribute after-tax income. That means your money grows tax-free and won't be taxed when you withdraw the money at retirement. The catch is that Roth IRA contributions are capped, and your income must be within certain limits.

Gold IRA: Should You Open One To Save For Retirement?

The Bottom Line

A rollover IRA is a flexible account that lets you move your traditional IRA or SEP-IRA from one investment provider to another without having to pay tax penalties or fees. Although your IRA rollover funds are typically held separately from the provider's general assets, they are not protected by SIPC insurance.