IRAs

IRAs

An IRA is a retirement savings plan that is independent from your employer. As with a 401(k), you don't pay taxes each year on capital gains, dividends, and other distributions from securities held in your IRA. But the downside is much lower contribution limits -- $5,500 a year for the 2015 tax year, or $6,500 if you're over 50.

A traditional IRA offers tax-deferred growth, meaning you pay taxes on your investment gains only when you make withdrawals in retirement, and, if you qualify, your contributions may be deductible, if you have no retirement plan at work and you're under 70-1/2. If you do have a 401(k) or other retirement plan at work, you may fully or partially deduct your contribution only if your adjusted gross income is below $71,000 for singles or $118,000 for couples.

If you're not eligible to contribute to a deductible IRA, a nondeductible IRA is a valid option. Your contribution won't be deductible, but at least your savings will grow tax-deferred.

Roth IRAs

A Roth IRA has the same contribution limits as the traditional IRA. You can't deduct your contributions to a Roth IRA, but it offers tax-free growth, meaning you owe no tax when you make withdrawals in retirement. The choice between a deductible and a Roth is difficult, but generally you're better off in a Roth if you expect to be in a higher tax bracket when you retire.

Plus, the Roth offers more flexibility: You are not required to make mandatory withdrawals from your account when you turn 70 1/2 -- as you are with other IRAs -- making the Roth a great way to leave money to your heirs. And if you need the money before retirement, there are more opportunities for penalty-free withdrawals.

But not everyone can contribute to a Roth. The income limits for 2015 are $131,000 if you're single or $193,000 if you're married and filing jointly.

SEP IRAs

A SEP IRA is a type of traditional IRA for self-employed individuals or small business owners. (SEP stands for Simplified Employee Pension.) Any business owner with one or more employees, or anyone with freelance income, can open a SEP IRA. Contributions, which are tax-deductible for the business or individual, go into a traditional IRA held in the employee's name. Employees of the business cannot contribute -- the employer does. The employer must contribute the same percentage of salary for every employee. Like a traditional IRA, the money in a SEP IRA is not taxable until withdrawal.

One of the key advantages of a SEP IRA over a traditional or Roth IRA is the elevated contribution limit. For 2015, business owners can contribute up to 25% of income or $53,000, whichever is less.

SIMPLE IRAs

A SIMPLE IRA, or Savings Incentive Match Plan for Employees, is a type of traditional IRA for small businesses and self-employed individuals. As with most traditional IRAs, your contributions are tax deductible, and your investments grow tax deferred until you are ready to make withdrawals in retirement.

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