An individual retirement account (IRA) is a type of tax-deferred account that is ideal for earning non-taxable money and saving for retirement. The following are the most popular IRAs that provide favorable tax benefits.

401(k) Plan: A 401(k) plan is provided by an employer and funded by contributions that are made throughout the employment period. These tax-free earnings accumulate until retirement begins, and withdrawals are made. The current limits for contributions to this account are $19,000. As of 2019, additional contributions of $6,000 can be made for people aged 50 or older. Employers can also match contributions that are made by their employees. Despite the tax-free status, there are 10% fees for early withdrawals before the age of 59.5.


Traditional IRA: The tax-deferred earnings in a traditional IRA grow untouched. The money is taxed when the account holder makes withdrawals during his or her retirement period. The maximum amount of contribution that can be made to this account is $6,000, with an optional $1,000 for people 50 years or older.


Roth IRA: A Roth IRA is funded and allowed to grow without being taxed in certain circumstances. After the account remains active for five years, and after age 59.5, the withdrawals are tax-deferred. Compared to the traditional IRA, taxable income is not reduced when contributions are made. Like the traditional account, there are maximum limits to the contributions that are made every year.


SEP IRA: A Simplified Employee Pension (SEP) IRA is available mainly for self-employed individuals. Like the 401(k) plan and IRA, SEP IRA contains tax-deferred earnings. The funds are taxed when the account holder makes withdrawals. The current contribution limits are $56,000.


403(b) Plan: The 403(b) is a type of employer-sponsored retirement plan for qualified organizations and employers. The contribution limits are similar to those that are offered by 401(k) plans. The funds grow tax-deferred until withdrawals are made.


Most people have retirement savings accounts, whether they’re employed by a company or self-employed. From the 401(k) plan to the Roth IRA, each has its own unique set of tax benefits. It’s essential to evaluate the risks and benefits of each plan based on one’s income and future retirement needs.