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Types of Self-Directed IRAs

Plans for every type of investor

Deciding which type of IRA to open as a retirement plan is an important financial decision. While all IRAs offer a way to save for retirement, each type — Traditional, Roth, SEP or SIMPLE — offer distinct advantages when it comes to taxation, required distributions and payouts, penalty structures and exceptions, age requirements and more. See which type of self-directed IRA is right for you.

Traditional IRA

A Traditional IRA gives individuals the opportunity to direct pretax income towards investments that can grow tax-deferred. Another plus is that no capital gains or dividend income is taxed until it is withdrawn. STRATA gives you access to a wide array of investment opportunities through a self-directed Traditional IRA, which makes it a great complement to a conventional Roth or Traditional IRA. Many investors choose to have multiple IRAs as a way to truly diversify their portfolios.


Traditional IRA features:

Annual tax deductible contributions are based on income level.

Anyone with earned income under age 70½ can contribute up to the annual maximum limit. See our IRA Annual Limits chart.

Withdrawals can begin at age 59½ and are mandatory by age 70½.

Funds withdrawn before age 59½ are subject to a 10% penalty unless an exception applies.

Taxes are paid on earnings when withdrawn from the IRA.

Traditional IRAs may be converted to Roth IRAs by paying income taxes (but no tax penalties) on the IRA distribution before rolling over to a Roth IRA, regardless of income limits.

Before making contributions to a Traditional IRA, be sure to know the contribution rules and limits that apply.

See contribution limits and guidelines

Roth IRA

A Roth IRA gives you the opportunity to set aside after-tax income up to a specified amount each year. Earnings on the account and withdrawals are tax-free after age 59½.


Roth IRA features:

Annual contributions are not tax deductible, but eligibility depends on income level.

Mandatory distributions at age 70½ are not required.

All earnings and principal are 100% tax-free as long as you follow the IRS rules.

Traditional, SIMPLE and SEP IRAs may all be converted to Roth IRAs by paying income taxes (but no tax penalties) on the IRA distribution before rolling over to a Roth IRA, regardless of income limits.

Eligibility is determined based on income; see our IRA Annual Limits chart.

Principal contributions can be withdrawn any time without penalty as long as the required five-year holding period is met.

Before making contributions to a Roth IRA, be sure to know the contribution rules and limits that apply.

See contribution limits and guidelines

Traditional IRA vs. Roth IRA

Compare the differences between Traditional and Roth IRAs:

 

Traditional

  • Annual contributions are tax deductible
  • Mandatory withdrawal at 70½ years of age
  • Taxes are paid on earnings when withdrawn from the IRA
  • Funds withdrawn before age 59½ are subject to a 10% penalty

Roth

  • Annual contributions are not tax deductible
  • Mandatory withdrawal or distributions at 70½ years of age is not required
  • Earnings and principal are tax-free as long as you follow the IRS rules
  • Principal contributions can be withdrawn any time without penalty as long as the required five-year holding period is met

SEP IRA

SEP is an acronym for Simplified Employee Plan and is a retirement plan that’s established by an employer. An SEP IRA permits employers to make deductible contributions which are made to a Traditional IRA.


SEP IRA features:

Employers can choose how much they want to contribute to an SEP in any given year, with a contribution limit of up to 25% of earned income.

SEPs can be opened by any type of business entity, including a sole proprietorship, a corporation or a partnership with up to 100 employees. In the case of sole proprietorships, the business owner is considered the employee for plan purposes.

With an SEP plan, each eligible employee has their own IRA account associated with the SEP.

Each year employers can choose whether or not to fund the account, depending on the business cycle that year.

If an employer makes a contribution for themselves, they must also make a contribution for all eligible employees.

Once funded, SEP contributions are 100% vested.

Before making contributions to a SEP IRA, be sure to know the contribution rules and limits that apply.

See contribution guidelines and limits

SIMPLE IRA

SIMPLE is an acronym for Savings Incentive Match Plan for Employees (SIMPLE). A SIMPLE IRA allows employers to plan for their employees’ retirement and their own.


SIMPLE IRA features:

Specifically designed for small businesses with 100 or fewer employees

If your business exceeds the 100-employee limit, you can be eligible to continue the plan for up to two years

Employees can make salary-reduced contributions and receive matching contributions from their employer

Employers are required to match the employee's contributions up to 3%

Employers may also decide to make a non-elective contribution to all eligible employees' accounts rather than making matching contributions

Once SIMPLE IRAs are funded, the account is 100% vested to the employee

Before making contributions to a SIMPLE IRA, be sure to know the contribution rules and limits that apply.

See contribution guidelines and limits

SEP IRA vs. SIMPLE IRA

Compare the differences between SIMPLE and SEP IRAs:

SEP IRA:

  • Best suited for smaller family-owned businesses or businesses with no employees
  • Accounts can be opened by any type of business entity
  • Employers can choose to fund or not to fund the account each year
  • Once the account is funded, it is 100% vested to the employee

SIMPLE IRA:

  • Best suited for small businesses with 100 or fewer employees
  • Accounts can only be opened by certain types of business entities
  • Employers are required to match the employee’s contributions up to 3%
  • Once the account is funded, it is 100% vested to the employee

Take the Next Step.

Whether you’re ready to open an account or just want to ask us a few questions, we’re always here to help.