Your Guide to IRAs: Savings for Every Life Stage

Whether you’re ahead of the game with your retirement savings goals or playing catch up, you’ve got options when it comes to savings—lots of them. One is the IRA (Individual Retirement Account), a long-term, tax-advantaged savings account you can use to save for retirement or future qualifying expenses like a first home or your child’s college tuition.

If you’re curious about the diverse types of IRAs and which would be good to add to your savings mix, read on as we break down the differences. We outline key features of the Roth IRA and Traditional IRA, including annual contribution limits, and provide a snapshot of other IRA types that may be worth a look. 

The Traditional IRA 

• Who is it for? Anyone who wants to save for retirement, whether or not you already have a workplace plan like a 401(k). 
• What’s special about it: Your money grows tax-free until you retire; minimum age for withdrawals is 59½. 
• How much can I contribute? Up to $7,000 annually for 2024 and 2025, with a $1,000 catch-up contribution for people over 50 (See Traditional IRA contribution limits). 
• When will I pay taxes on it? You’ll pay taxes when you start making withdrawals in retirement—when you may be in a lower tax bracket. 
• For more on Traditional IRAs, read our blog post Seven Things to Know About Traditional IRAs. You can also see how your money could grow with our Roth or Traditional IRA Calculator.

The Roth IRA 

• Who is it for? People who want to save for retirement and who earn less than the maximum gross income (Learn about income limits here). 
• What’s special about it: Contributions are taxed before going into your Roth IRA, so you won’t pay taxes on withdrawals. Minimum age for withdrawals is 59½.
• How much can I contribute? Up to $7,000 annually for 2024 and 2025, with a $1,000 catch-up contribution for people over 50 (See Roth IRA contribution limits).  
• Bonus: You can use it for other things. A Roth IRA has flexibility built in—you can also use it for qualifying expenses, like a first-time home purchase or college tuition.

For more on Roth IRAs, read our blog post Need To Know Tips About Roth Retirement Accounts. You can also see how your money could grow with our Roth or Traditional IRA Calculator.

SIMPLE IRA (Savings Incentive Match Plan for Employees)

• Who is it for? A SIMPLE IRA can be opened by small businesses with 100 or fewer employees. Both employer and employee must contribute. 
• What’s special about it? It’s tax-deferred until retirement, starting at age 59½. You’ll pay taxes for each withdrawal after you retire. 
• How much can I contribute? Employees can contribute up to $16,000 for 2024, plus a $3,500 catch-up contribution for people over 50. Learn about SIMPLE IRA contribution limits.

SEP IRA (Simplified Employee Pension)

• Who is it for? Self-employed individuals or small businesses with very few employees. The employer (if you’re a solopreneur, that’s you) makes the contributions to this type of IRA.
• What’s special about it? Your money grows tax-free until you retire; minimum age for withdrawals is 59½. 
• How much can be contributed? Employers can contribute 25 percent of the employee's income, up to $69,000 for 2024 and up to $70,000 for 2025 (See SEP contribution limits).

Coverdell Education Savings Account (CESA)

• What is it? While not technically an IRA, it’s similar. A CESA is a specialized savings plan for educational expenses. It’s established by a contributor (for example, you if you’re a parent or guardian) for a beneficiary.
• What to know about it: Contributions are not tax-deferred and can be made until the beneficiary is 18, unless they are a special needs beneficiary (Learn more about CESAs).
• How do distributions work? Distributions (withdrawals) for qualifying educational expenses are tax free.

Also good to know: You have until each year’s tax deadline (April 15) to make IRA contributions for the previous year. Consult the IRS.gov website for more information.

If you’d like some expert guidance to decide which IRA is right for you, our friendly bankers are always eager to help you reach your financial goals. Visit your local branch or call us toll free at 800-272-9933.