When you’re self-employed, you don’t get all the benefits a person with an employer does. It’s good to be an entrepreneur and make your own money, but how do you ensure you have retirement money to take care of yourself when you retire? 

There are various types of individual retirement accounts. Some of them cater to self-employed individuals and business owners. Once you’ve found and opened one that suits your needs, you’ll be open to endless possibilities. 

For instance, some people capitalize on their IRA by turning it into a gold 401k rollover which is easily done. You can explore other types of IRAs and their benefits below.

What is An IRA?

IRA is short for individual retirement account, which is a long-term investment for people earning an income. It has specific tax benefits and is mainly made for individuals who don’t have an employer. However, this doesn’t exclude employees in a 401k plan, as various types are suitable for different income earners.

Types of IRA

If you’ve aren’t sure about how IRAs work and which one to pick, they’re listed and explained them below:

Traditional IRA

Traditional IRAs have tax-deductible contributions and grow tax-deferred money. When the time comes to withdraw your money, the state poses an income tax rate to it. The amount you can contribute annually is up to $6,500 for 2023. 

If you’re 50 years or older, you can make a catch-up contribution of $1,000. This means that you can contribute a maximum amount of $7,000. These contribution amounts can also be influenced by whether you have a 401k, 401b, or are married to someone who does. 

SEP IRA

This is made for self-employed, small business owners, and independent contractors. It has similar tax rules to traditional IRAs. The maximum contribution you can make in 2023 is set at $66,000. 

Business owners can also set up this type of account for their workers. They’re responsible for deducting the contribution from their employees as they can’t directly make it themselves. 

SIMPLE IRA

This type of retirement investment also follows the same tax rules as the above. It’s for small businesses and self-employed people. Like the SEP IRA, a business owner can set up SIMPLE IRAs for employees and deduct contributions from their remuneration. 

However, employees can directly make payments to their accounts. 

Roth IRA

Roth works differently regarding taxes. You pay taxes now, and they’ll be reduced in the future. Your money grows tax-free in this account; you can withdraw without taxes.

To withdraw without penalties, you have to have at least reached 59 years and six months. The 2023 contribution limit is $6,500. If you’re older than 50, you can make a catch-up contribution of up to $1,000.

The Bottom Line

Individual retirement accounts are available to employees and self-employed individuals. They can be an addition to your 401k or a secure retirement account you’ve opened as a freelancer. 

The common characteristic is that they have tax benefits. Most have tax-deductible contributions and have tax-deferred growth. Others have tax-free money growth while their contributions are taxed. 

What’s important is that you choose an IRA that suits your needs.