What is an IRA?

An Individual Retirement Account (IRA) is an account that promotes saving for retirement by providing various tax advantages. 

Investing in an IRA can be a great way to supplement any employer-sponsored retirement plan you may have. IRAs can help you gain access to a potentially wider range of investment options to diversify beyond your employer-sponsored plan. There are several types of IRAs, each with unique requirements and consequences. When choosing an IRA, you’ll want to consider your personal circumstances and retirement savings goals. 

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Types of IRAs

Traditional IRAs, Roth IRAs, and Rollover IRAs are the 3 most common types of individual retirement accounts. Variations of common IRA types include Inherited IRAs and Custodial IRAs. There are 2 more types of IRAs, the SEP IRA and SIMPLE IRA, which are intended for self-employed individuals and small businesses. Each IRA has its own characteristics to evaluate when setting your retirement savings goals.

Traditional IRA
  • Contributions may be tax deductible. See Traditional IRA limits.
  • Withdrawals of pre-tax contributions and earnings are taxed as current income during retirement.
  • No income limitations.

What is a traditional IRA?

Roth IRA
  • Contributions are not tax-deductible. See Roth IRA contribution limits.
  • Withdrawals are generally tax- and penalty-free after 5 years and after age 59½.
  • Income eligibility limitations.

What is a Roth IRA?

Rollover IRA
  • May have more choices and lower fees than a 401(k).
  • No taxes or withdrawal penalties at time of transfer.
  • Funds can continue to grow tax-advantaged.

What is a Rollover IRA?

Inherited IRA
  • For those who inherit a Traditional or Roth IRA.
  • Tax-deductible contributions or IRA conversions aren't allowed.
  • Annual distributions or liquidation of the account within a period certain is required.

What is an Inherited IRA?

Custodial IRA
  • For children under age 18 who have earned income.
  • Can be a Traditional or Roth IRA.
  • Funds can be used to pay for college.

What is a Custodial IRA?

Nonqualified withdrawals from an IRA are subject to a 10% federal tax penalty.

Why should I consider investing in an IRA?

When estimating how much income you'll need in retirement, you may discover your employer-sponsored savings plan isn't able to achieve your goal on its own. If your 401(k) is not able to grow enough to meet your savings needs, contributing to an IRA can help make up the difference. Learn why an IRA may make sense even when you've got a 401(k).

Learn more about IRAs

Common questions

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