Types of IRA: Which Account Is Right for You?

Individual retirement accounts (IRAs) come with tax benefits that can help you grow your wealth, and millions of Americans own at least one. According to the Investment Company Institute (ICI), 44% of US households owned IRAs as of mid-2024.⁽¹⁾

Originally designed to give workers without an employer-sponsored retirement plan a way to get tax benefits to save for retirement, IRAs are now available to all workers and even businesses.

So, what are the different types of IRAs, and which is right for you?

What is an IRA?

An individual retirement account (IRA) is a type of investment account that offers tax benefits for saving for retirement. They’re accessible — most major banks and brokerage firms offer IRAs, anyone with earned income can open one and they’re incredibly straightforward to set up. IRAs are also versatile in that they let you invest in a wide range of assets, unlike a 401(k), which typically limits you to a menu of mutual funds.

The traditional IRA, the first IRA type introduced in 1974, lets you deduct your contributions each year. Since then, Congress has created additional types for business owners, nonworking spouses and investors who want access to a broader set of assets.

The 4 main types of IRAs

1. Traditional IRA

The traditional IRA is the original individual retirement account and remains the most popular IRA type among Americans. According to the ICI, 33% of US households owned a traditional IRA as of mid-2024.⁽¹⁾

With tax-deductible contributions and tax-deferred growth, traditional IRAs give investors a way to cut their taxable income now and let their money compound over time. Unlike the Roth IRA, there are no income limits — you can contribute to a traditional IRA regardless of how much you earn. Traditional IRA features include:

• A 2026 contribution limit of up to $7,500 ($8,600 if you’re age 50 or older).⁽⁴⁾
• Deductible contributions, depending on your modified adjusted gross income (MAGI), filing status and whether you’re covered by a retirement plan at work.
• Investment earnings grow tax-deferred so long as they’re kept in the account.
• A 10% penalty applies if you withdraw contributions or earnings before age 59 and a half.
• Withdrawals are taxed at your then-current income tax rate in retirement.
• Required minimum distributions (RMDs) begin at age 73.

2. Roth IRA

The Roth IRA is the second-most popular IRA type in the US and one of the best accounts for building tax-free wealth. According to the ICI, 26% of US households owned a Roth IRA as of mid-2024.⁽¹⁾

With a Roth IRA, you contribute after-tax dollars. The trade-off is that you must meet income eligibility requirements to contribute directly, and you must wait at least five years from your first contribution to withdraw earnings tax-free. Roth IRA features include:

• A 2026 contribution limit of up to $7,500 ($8,600 if you’re age 50 or older).⁽⁴⁾
• Tax-free earnings growth and tax-free withdrawals in retirement.
• Income limits determine eligibility to contribute directly.
• Contributions (not earnings) can be withdrawn at any time, tax- and penalty-free, since you’ve already paid taxes on them.
• You must wait at least five years from your first Roth IRA contribution to withdraw earnings tax-free, even if you’re over 59 and a half.
• A 10% early-withdrawal penalty applies only to earnings if you’re under age 59 and a half.
• No required minimum distributions during the account owner’s lifetime.

3. SEP IRA

A simplified employee pension (SEP) IRA is an employer-funded retirement account available to businesses of any size, though it’s most commonly used by small businesses and the self-employed. Employers contribute directly to the account on behalf of eligible employees, and those contributions are tax-deductible. SEP IRA features include:

• A 2026 contribution limit of up to the lesser of $72,000 or 25% of the employee’s pay.⁽⁴⁾
• Only employers contribute — employees cannot make elective salary deferrals or catch-up contributions.⁽²⁾
• Employers don’t have to contribute every year, but when they do, they must contribute equally for all eligible employees.⁽²⁾
• Employees are 100% immediately vested, and SEP contributions don’t affect the amount an employee can contribute to their own Roth or traditional IRA.⁽²⁾
• Eligible employees must be at least 21 years old, have earned at least $800 in compensation for 2026 and have worked for the employer in at least 3 of the last 5 years.⁽⁴⁾
• Early withdrawal rules mirror those of a traditional IRA — a 10% penalty applies before age 59 and a half.

4. SIMPLE IRA

The savings incentive match plan for employees (SIMPLE) IRA is designed for small businesses with 100 or fewer employees. Unlike the SEP IRA, both employers and employees can contribute, making it function more like a 401(k). Employees contribute through salary deferrals and employers are required to make contributions. SIMPLE IRA features include:

• Only available to businesses with 100 or fewer employees who each received at least $5,000 in compensation the prior year and no other qualified retirement plan.⁽³⁾
• Employees can contribute up to $17,000 for 2026 ($21,000 if age 50 or older).⁽⁴⁾ Contributions count toward the overall salary deferral annual limit of $24,500 for 2026 if the employee also participates in a 401(k) elsewhere.⁽⁴⁾
• Catch-up contributions are $4,000 for those age 50 or older, or $5,250 for those age 60 to 63 in 2026.⁽⁴⁾
• Employers must contribute either dollar-for-dollar matching up to 3% of compensation (no lower than 1%), or a nonelective contribution of 2% of compensation for all eligible employees — even those who don’t contribute.⁽³⁾
• Employees are always 100% vested. Employer contributions are tax-deductible.⁽³⁾

Other IRA types to know

Beyond the four main types, there are other IRA options worth knowing about depending on your situation.

Spousal IRA

A spousal IRA allows a non-working or low-earning spouse to contribute to an IRA using their working spouse’s income, as long as the couple files a joint tax return. It’s not a separate account type — it’s a traditional or Roth IRA opened in the non-working spouse’s name. Each spouse can contribute up to $7,500 in 2026 ($8,600 if age 50 or older), but combined contributions can’t exceed the taxable compensation reported on their joint return.⁽⁴⁾

Backdoor Roth IRA

A backdoor Roth IRA is a strategy that allows high earners who exceed Roth IRA income limits to still get money into a Roth IRA. It works by contributing to a traditional IRA and then converting it to a Roth IRA. The conversion is permanent, and you’ll owe income taxes on any untaxed amounts converted.

Self-directed IRA

A self-directed IRA (SDIRA) is a traditional or Roth IRA that allows you to invest in a broader range of assets beyond stocks, bonds and mutual funds — including cryptocurrency, real estate and precious metals. The same contribution limits apply as with a regular traditional or Roth IRA.⁽⁴⁾ SDIRAs are more complex, typically carry higher fees and are prone to fraud due to limited regulatory oversight — most major brokerages don’t offer them.

One in three have an IRA

Do you have an IRA?

If you’re planning to open an IRA, you’ll be joining approximately a third (31%) of American adults who have an open account.

Bottom line

The right IRA depends on your income, tax situation and whether you’re saving as an individual or a business owner. For most people, the choice comes down to a traditional IRA for an immediate tax break or a Roth IRA for tax-free growth. But the best IRAs of 2026 and best Roth IRAs in 2026 are those that offer the most investment options, fewest fees and greatest selection of trading tools and educational resources.

Frequently asked questions about the types of IRAs

• How many types of IRA are there?

  There are four main types of IRA: the traditional, Roth, SEP and SIMPLE IRA. Other IRA options include the spousal IRA, the backdoor Roth IRA and the self-directed IRA.

• Which type of IRA is best?

  The best IRA type depends on your situation. A traditional IRA is generally better if you want an immediate tax deduction and expect to be in a lower tax bracket in retirement. A Roth IRA is better if you expect higher taxes later and want tax-free withdrawals. A SEP or SIMPLE IRA is the right choice if you're a business owner looking to provide retirement benefits.

• Which is better: Roth IRA or traditional IRA?

  Whether a Roth or traditional IRA is better depends on your tax situation. A Roth IRA is better if you expect to be in a higher tax bracket in retirement and want tax-free withdrawals. A traditional IRA is better if you want to reduce your taxable income now and expect a lower tax rate when you retire.

• What are the two most popular types of IRA?

  The two most popular types of IRAs are the traditional IRA and the Roth IRA. According to the ICI, 33% of US households owned a traditional IRA as of mid-2024, while 26% owned a Roth IRA.⁽¹⁾

To make sure you get accurate and helpful information, this guide has been edited by Holly Jennings as part of our fact-checking process.

Written by

Matt Miczulski

Investments editor and market analyst

Matt Miczulski is an investments editor and market analyst at Finder. With over 450 bylines, Matt dissects and reviews brokers and investing platforms to expose perks and pain points, explores investment products and concepts and covers market news, making investing more accessible and helping readers to make informed financial decisions. Before joining Finder in 2021, Matt covered everything from finance news and banking to debt and travel for FinanceBuzz. His expertise and analysis on investing and other financial topics has been featured on Yahoo Finance, CBS, MSN, Best Company and Consolidated Credit, among others. Matt holds a BA in history from William Paterson University. See full bio

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