Understanding Your IRA Options
Dive into the differences between traditional, Roth and SEP IRAs to choose the right option for your needs.
Bottom Line Up Front
- Traditional IRAs qualify for tax deductions and enjoy tax-deferred growth until you begin withdrawing in retirement.
- Roth IRAs don’t offer a tax break on contributions, but you won’t pay any taxes on your earnings when you start to withdraw money in retirement.
- Simplified Employee Pension (SEP) IRAs are employer sponsored, meaning contributions are made only by the employer.
Time to Read
4 minutes
December 17, 2024
Individual Retirement Accounts (IRAs) are retirement savings accounts offered by credit unions, brokerages and other financial institutions. They have special tax advantages not available with other types of savings accounts. The 3 most popular types of IRAs are Traditional, Roth and Simplified Employee Pension (SEP) IRAs. Each is subject to different rules and regulations.
Points to Know
What’s a Traditional IRA?
A traditional IRA is a way to save for retirement, up to $7,000 a year (as of 2025). Those age 50+ may add another $1,000. According to the IRS, contributions may be “fully or partially deductible, depending on your filing status and income.“ Your account will grow tax-deferred. That means you won’t pay taxes until you make a withdrawal at age 59 ½ or later (to avoid a 10% early distribution penalty). Then, your withdrawals will be taxed at your tax rate at the time you take money out. Since most people have less income at retirement, it’s likely you’d also pay less in taxes.
What All IRAs Have in Common
While there are important differences among the various IRAs, they share some common features. Knowing these features will make it easier to plan your investment strategy.
- All IRA accounts allow for a wide range of investment opportunities. Investment choices include stocks, mutual funds and exchange-traded funds (ETFs), and annuities. Some investments aren’t allowed in IRAs, including certain insurance products (life insurance) and collectibles like art or antiques (your tax advisor can explain the details). When deciding on investments, you should ask whether you’ll have to pay account fees and transaction fees.
Some Things to Consider
If you don’t have an employer-sponsored retirement plan, you can start building your retirement fund right now with an IRA that you control. They’re pretty easy to open. And, even if you do have a 401(k) or have maxed-out your contributions, you can still have an IRA, subject to the income, participation and plan rules.
How to Get Started
You’ll need the same type of information to open an IRA as you would for any other types of savings account, like birthdate, Social Security Number, and employment and contact information. At Navy Federal, you have options. You can open a Traditional, Roth or SEP IRA. We also offer retirement certificates, money market and jumbo money market accounts. To see our current rates and how to get started, visit our retirement savings page.
Interested in an IRA investment account? Digital Investor offers both Traditional and Roth IRAs as a tax-advantaged way to grow your wealth in the stock market. And, whether you open a new IRA or roll over your 401(k) account, we make it simple. You can contact us through Live Chat or by email at contactdigitalinvestor@navyfederal.org to get started.
That’s right! Because IRAs are set up to help people save for retirement, they have special tax advantages.
Not quite. IRAs are set up to help people save for retirement, so they have special tax advantages.
Good eye! With a Roth IRA, assuming you start making withdrawals when you’re at least age 59 1/2, you actually won’t pay taxes on them.
Oops. This was a hard one. With a Roth IRA, assuming you start making withdrawals when you’re at least age 59 1/2, you actually won’t pay taxes on them.
Excellent! Employees get the benefit of a retirement plan without having to make contributions.
This one is actually true. Employees get the benefit of a retirement plan without having to make contributions.
Disclosures
Navy Federal Financial Group, LLC (NFFG) is a licensed insurance agency. Non-deposit investments, brokerage, and advisory products are only sold through Navy Federal Investment Services, LLC (NFIS), a member of FINRA/SIPC and an SEC-registered investment advisory firm. NFIS is a wholly owned subsidiary of NFFG. Insurance products are offered through NFFG and NFIS. These products are not NCUA/NCUSIF or otherwise federally insured, are not guaranteed or obligations of Navy Federal Credit Union (NFCU), are not offered, recommended, sanctioned, or encouraged by the federal government, and may involve investment risk, including possible loss of principal. Deposit products and related services are provided by NFCU. Digital Investor offered through NFIS. Financial Advisors are employees of NFFG and they are employees and registered representatives of NFIS. NFIS and NFFG are affiliated companies under the common control of NFCU. Call 1-877-221-8108 for further information.
This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.