9 Ways to Take Advantage of an IRA

Key Points

• People from different walks of life need different types of IRAs.

• With a spousal IRA, it's possible to build a retirement account of your own, even if you're not working.

• A Roth IRA for kids allows teens to get a jump on retirement savings.

• The $23,760 Social Security bonus most retirees completely overlook ›

There are not nine separate types of individual retirement accounts (IRA), but there are at least nine clear doorways that lead to IRAs. For example, there's no retirement account specifically called a "spousal IRA," but there are rules that allow a nonworking spouse to build an IRA of their own. Below you'll find an overview of nine ways to put your money to work for you in an IRA and important facts to know about each.

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1. Traditional IRA

One of the best-known types of IRA is traditional. A traditional IRA allows you to save for retirement using pre-tax dollars. That means you pay no taxes on those earnings now, but will owe taxes after you retire. Traditional IRAs are popular with investors who believe they'll be in a lower tax bracket after retirement than they are today.

• Who's eligible: Anyone with earned income.
• Annual contribution limits: $7,000 for 2025 tax year, with an additional $1,000 for those 50 and older.
• Tax details: Investors can withdraw contributions at any time tax-free. However, they'll incur taxes and penalties if they withdraw earnings before age 59 1/2 and have held the account for less than five years.

2. Roth IRA

Contributions to a Roth IRA are made with money you've already paid taxes on. However, withdrawals in retirement are tax-free, saving you money throughout your golden years.

• Who's eligible: Anyone who earns an income greater than the amount they plan to contribute, but whose income falls within IRA guidelines (see income requirements in the table below).
• Annual contribution limits: $7,000 for 2025 tax year, with an additional $1,000 for those 50 and older.
• Tax details: Funds can be accessed without penalty or taxes after age 59 1/2.

Data source: Fidelity

Note: If you and your spouse didn't live together during the tax year, your filing status will be categorized as "single" for Roth IRA contribution purposes.

3. Roth IRA for kids

A Roth IRA for kids is a standard Roth. It's called a Roth IRA for kids because it allows minors under the age of 18 to contribute after-tax dollars toward retirement, with a parent or adult assigned as an account custodian who manages the assets. Typically, the account is transferred to the child between age 18 and 25, depending on the state.

• Who's eligible: Any minor under the age of 18 with an earned income.
• Annual contribution limits: $7,000 for the 2025 tax year, or the total amount of money earned by the minor during the year, whichever is less.
• Tax details: Funds can be accessed without penalty and tax free after age 59 1/2.

4. Spousal IRA

A spousal IRA is simply a traditional or Roth IRA that allows a spouse who's earning low (or no) annual wages to save for retirement in an account in their name only.

• Who's eligible: Those who are married and filing a joint return.
• Annual contribution limits: $7,000 for 2025 tax year, plus a $1,000 catch-up contribution for those 50 and older.
• Tax details: Same rules as those for a traditional or Roth IRA, depending upon whether a traditional or Roth account was opened.

5. Self-managed IRA

Rather than a separate investment vehicle, a self-managed IRA is a type of traditional or Roth IRA. While most IRAs allow you to choose your own investments, what sets a self-managed IRA apart is the broader range of investments available to choose from. A self-managed IRA gives you access to everything from precious metals, to cryptocurrency, real estate, and commodities.

• Who's eligible: Same rules as traditional and Roth IRAs.
• Annual contribution limits: Also subject to the same rules as traditional and Roth IRAs. The difference is investments are made through a third-party custodian or trustee.
• Tax details: Same rules as those for a traditional or Roth IRA, depending upon whether a traditional or Roth account was opened.

6. SEP IRA

A simplified employee pension (SEP) IRA is a traditional IRA that an employer sets up for employees, including themselves. A SEP is a good option for a small-business owner.

• Who's eligible: Employers and self-employed individuals.
• Annual contribution limits: Contributions are based on business cash flow and are limited to the lesser of 25% of employee compensation or $70,000 for the 2025 tax year.
• Tax details: SEP earnings grow tax-free and are subject to the same rules as traditional IRAs.

7. SIMPLE IRA

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is another type of traditional IRA. It's designed specifically for businesses with 100 employees or less.

• Who's eligible: Employers and self-employed individuals.
• Annual contribution limits: In 2025, employees can contribute up to $16,5000, plus an additional $3,500 catch-up contribution. Employees between the ages of 60 and 63 enjoy a boosted catch-up amount of $5,250.
• Tax details: Rules regarding withdrawals are nearly the same as a traditional IRA, with one exception. Withdrawals made within two years of contribution may be subject to penalties.

8. Rollover IRA

A rollover IRA is created by transferring funds from a previous workplace retirement plan into a traditional IRA.

• Who's eligible: Anyone with a workplace retirement plan from a previous employer. This includes 401(k), 403(b), and 457 plans.
• Annual contribution limits: Participants can roll over all or a portion of their retirement account, with an exception for issues like outstanding loans drawn from the account.
• Tax details: Funds can be accessed without penalty after age 59 1/2. Once withdrawn, earnings are taxed at the ordinary tax rate.

9. Inherited IRA

An inherited IRA is a retirement account left to you by someone who has passed away.

• Who's eligible: Beneficiaries of an IRA.
• Annual contribution limits: No additional contributions can be made.
• Tax details: Taxes are based on the type of the original account, but withdrawals can be made from an inherited IRA at any time without penalty.

As you can see, there are several ways to invest in an IRA. You even get to determine if you'd rather pay taxes now or after you've retired. It's that flexibility that makes IRAs an attractive investment option.

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