Final answer:
Apart from the Traditional IRA, other IRA types include the Roth IRA, which offers tax-free growth and withdrawals, the SIMPLE IRA for small business employees with employer and employee contributions, and the SEP IRA, which allows for larger contributions for self-employed individuals and small business owners. These are all designed as tax-advantaged retirement savings accounts.
Step-by-step explanation:
Apart from the Traditional IRA, there are other types of Individual Retirement Accounts (IRAs) that can help in planning for retirement. These include:
- Roth IRA: Unlike traditional IRAs, a Roth IRA allows you to invest after-tax income. The key benefit of a Roth IRA is that the contributions grow tax-free, and the withdrawals during retirement are not subject to income tax, making it an appealing option for those expecting to be in a higher tax bracket during retirement.
- SIMPLE IRA: The Savings Incentive Match Plan for Employees allows small businesses to set up IRAs for their employees. If you are self-employed or a small business owner, the SIMPLE IRA allows both the employer and employee contributions, and the contributions are tax-deferred until withdrawal.
- SEP IRA: A Simplified Employee Pension Plan is designed for self-employed individuals or small business owners. It allows for larger contributions than a traditional or Roth IRA, making it a good option for those who want to save more aggressively for retirement.
These IRAs are part of a wider array of tax-advantaged retirement accounts, such as 401(k)s and 403(b)s, which are defined contribution plans.
Contributions to these accounts are tax-deferred, meaning you pay no taxes on the contributions or the account's earnings until you withdraw the money, typically during retirement when your tax bracket may be lower.