Final answer:
There are several types of IRAs beyond the Traditional IRA, each with unique contribution rules and tax benefits: Roth IRA offers tax-free growth, SIMPLE IRA is for small businesses and their employees, and SEP IRA is for the self-employed or small business owners. All provide tax advantages to encourage retirement savings.
Step-by-step explanation:
Apart from the Traditional IRA, which allows for tax-deferred savings, there are several other types of Individual Retirement Accounts (IRAs) that offer different tax benefits and contribution rules:
- Roth IRA: Contributions to a Roth IRA are made with after-tax dollars. This means that the money grows tax-free, and withdrawals during retirement are not taxed. This account is suitable for those who expect to be in a higher tax bracket during retirement.
- SIMPLE IRA: A Savings Incentive Match Plan for Employees IRA allows small businesses to offer retirement plans. Employees and employers can contribute, and like the Traditional IRA, contributions are pre-tax, which could lower the taxable income.
- SEP IRA: A Simplified Employee Pension IRA is used by self-employed individuals or small business owners. With a SEP IRA, contributions are tax-deductible and tax is deferred until withdrawal.
All these accounts are aimed at allowing individuals to save for retirement in a tax-advantaged manner. The differences primarily lie in who can contribute, how much they can contribute, and the tax treatment of these contributions. It's important for individuals to consider their current tax situation, future income expectations, and retirement goals when choosing an IRA that best fits their needs.