What are individual retirement accounts or more commonly known as IRAs? Basically IRA accounts are simply put as retirement plans. These are tools used by individuals to secure finances for their retirement and how to maximize the same. These were introduced by law in 1974 by way of the Employee Retirement Income Security Act otherwise known as ERISA. When this law was introduced individuals could make contributions of up to one thousand five hundred dollars ($1500) for which they could deduct the same amount from their taxable income. The same amount was unchanged until 1982 where they increased the limit to two thousand dollars ($2000) and increased it again to three thousand dollars in 2002, four thousand dollars in 2004 and $5000 in 2008 up to the present. Those individuals who are above 50 are also allowed to make an additional contribution of $1000 making it $6000 in all.

There are basically four main types of IRAs namely: Traditional IRA, Roth IRA, SEP IRA, and Simple IRA. Traditional IRA is when contributions are tax-deductible or whatever is deposited intended for the IRA comes before taxes are applied. Introduced through the Taxpayer Relief Act of 1997, Roth IRA, named after Senator William Roth, Jr., this type of IRA is when contributions are made with after tax assets hence are not tax deductible. SEP IRA on the other hand is a type of IRA wherein self-employed individuals mostly owners of small and micro enterprises are allowed to make contributions into a Traditional IRA directly in the name of his employees rather than in the company’s pension fund. Simple IRA is basically the type wherein both the employer and the employee are allowed to make contributions to the individual retirement account.

To know what is the best IRA account for you it is important that you take time to scrutinize each type of IRA and see what would be best for your situation. Each has its own pros and cons and although there is no perfect IRA type, depending on your situation, there is surely one or a combination that would best fit your condition. So set up an account now and congratulations for preparing yourself for a stable and financially happy future.

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