The 9 Different Types of IRAs Compared

Many people focus on the Traditional IRA and Roth IRA because they are widely available and straightforward to open. These plans allow workers to save for retirement in tax-advantaged ways, although each follows a different set of contribution, deduction, and income rules. High-income earners often explore a nondeductible Traditional IRA contribution followed by a Roth conversion, which is commonly called a Backdoor Roth strategy. It can be a way to move funds into a Roth despite contribution income limits.

There are several other individual retirement accounts that serve distinct circumstances and offer different tax features. Below we will walk through each option, outline the rules that shape how they work, and highlight the factors that influence whether they may fit a specific financial situation.

What Are the Different Types of IRAs?

Several IRA structures exist beyond the well-known Traditional and Roth options. Each one serves a different purpose, and the rules vary based on employment status, income, and the source of contributions. 

The list below provides a practical overview before we examine how each IRA works in more detail.

📌 Own a business? Here’s a list of all retirement account options for business owners.

IRA Type	Who It’s For	Key 2025 Contribution Rules	Additional Notes
Traditional IRA	Individuals with earned income	$7,000 limit ($8,000 if 50+). Contributions may be deductible.	Deduction depends on income and access to a workplace plan.
Roth IRA	Individuals	$7,000 limit ($8,000 if 50+). Income limits apply.	Growth can be tax-free. High earners may use a nondeductible contribution and conversion strategy.
SEP IRA	Self-employed individuals and business owners	Employer contributions only. Up to 25% of compensation or $70,000.	Offers flexible annual contribution decisions.
SIMPLE IRA	Small businesses	Employee deferrals up to $16,500. Catch-up of $3,500 (or $5,250 for ages 60–63).	Employer match or nonelective contribution required.
Nondeductible IRA	Individuals who do not qualify for a deductible IRA or Roth contribution	$7,000 limit ($8,000 if 50+). No deduction allowed.	Growth is tax-deferred. Accurate basis tracking is important.
Spousal IRA	Married couples filing jointly	Follows Traditional or Roth limits using the working spouse’s income.	Allows a non-earning spouse to build retirement savings.
Self-Directed IRA	Investors seeking broader asset options	Contribution rules depend on the IRA type (Traditional or Roth).	Subject to strict prohibited-transaction rules. Requires careful oversight.
Custodial IRA	Minors with earned income	Follows Traditional or Roth limits.	A custodian manages the account until the child reaches adulthood.
Rollover IRA	Individuals moving funds from an employer plan	No annual contribution limit for rollovers.	Helps consolidate tax-advantaged savings after job changes.

1. Traditional IRA

A traditional IRA is an individual retirement account that allows contributions from anyone with earned income. Contributions are not restricted by income level, although the ability to claim a deduction may change when the contributor or spouse participates in an employer plan. Traditional IRAs offer tax-deferred growth, and withdrawals in retirement are taxed as ordinary income.

Eligibility

Traditional IRAs remain accessible to all income levels. The deduction rules determine whether a contribution reduces taxable income.
✅ Single filers: deduction phases out between $79,000–$89,000.
✅ Married filing jointly: deduction phases out between $126,000–$146,000 when the contributor is covered by a workplace plan.

📝 Note: Deduction limits apply only when the contributor (or spouse) is covered by an employer-sponsored plan.

Contribution Limits

The combined annual IRA limit for 2025 is $7,000, or $8,000 for individuals age 50 or older. Contributions to Traditional and Roth IRAs count toward this shared limit.

✏️ Hypothetical Example: 

Someone under 50 who contributes $5,000 to a Roth IRA can contribute only $2,000 to a Traditional IRA for the same year.

Investment Options

Most custodians offer traditional market investments such as stocks, bonds, ETFs, and mutual funds. Self-directed Traditional IRAs allow broader investment choices, but all IRA accounts remain subject to IRS restrictions.

📝 Note: Certain assets, such as life insurance and most collectibles, are not permitted. 

Withdrawals

Withdrawals from a Traditional IRA are generally taxed as ordinary income. Penalty-free access begins at 59½. Early withdrawals usually result in a 10% penalty plus income tax unless an exception applies.

2. Roth IRA

A Roth IRA offers tax-free growth and tax-free qualified withdrawals. Contributions are made with after-tax dollars and follow income-based eligibility rules. Roth IRAs do not offer tax deductions, but they provide more flexible access to contributions and potential long-term tax benefits.

Eligibility

Roth IRA eligibility depends on modified adjusted gross income (MAGI).

✅ Single filers: phaseout begins at $150,000 and ends at $165,000.
✅ Married filing jointly: phaseout begins at $236,000 and ends at $246,000.

Individuals above the top of the phaseout cannot contribute directly.

📝 Note: A nondeductible Traditional IRA contribution followed by a Roth conversion is still allowable under current rules and is often used by high-income earners.

Contribution Limits

Roth IRA contributions fall under the same combined annual limit as Traditional IRAs:

✅ $7,000 for 2025
✅ $8,000 for individuals age 50 or older

Investment Options

Roth IRAs generally offer the same investment menu as Traditional IRAs. Most providers focus on market-based assets, though self-directed Roth IRAs allow a broader set of options.

📝 Note: Prohibited-transaction rules still apply, and violating them can cause account disqualification. This can trigger immediate taxation and potential penalties on the entire account.

Withdrawals

Roth IRAs offer more flexibility for accessing contributions.

✅ Contributions can be withdrawn at any time without taxes or penalties.
✅ Earnings become tax-free when both conditions are met:

📌 Learn more about the Traditional and Roth IRA income limits here.

3. SEP IRA

A SEP IRA works much like a Traditional IRA but is designed for self-employed individuals and business owners. It offers a higher contribution limit and follows specific rules when employees qualify for contributions. Employers can make flexible annual contributions, although the formula must be applied consistently across all eligible employees.

Eligibility

A SEP IRA can be established by any business owner, including sole proprietors, freelancers, and small businesses with employees. If employees qualify, the employer must contribute the same percentage of compensation to every eligible worker.

✏️ Hypothetical Example: 

Contributing 20% of your compensation to your own SEP IRA also requires contributing 20% of each eligible employee’s compensation.

Eligibility rules for employees include:

✅ Age 21 or older
✅ Worked for the business in any 3 of the last 5 years
✅ Earned at least $750 during the year (threshold remains $750 for 2025)

Employees who meet these criteria must receive the same percentage contribution you give yourself.

Contribution Limits

Employer SEP IRA contributions for 2025 are limited to:

✅ The lesser of 25% of compensation or $70,000
❌ No catch-up contributions apply

SEP contributions are made by the employer only. Employees cannot defer their own salary into a SEP IRA.

Investment Options

SEP IRAs follow the standard investment rules that apply to Traditional IRAs. Most custodians offer market-based securities such as stocks, bonds, ETFs, and mutual funds.

A self-directed SEP IRA may allow broader options, but prohibited-transaction rules still apply. This includes life insurance and most collectibles.

Withdrawals

SEP IRA withdrawal rules mirror those of Traditional IRAs.

Employees who receive SEP IRA contributions own the account immediately. All employer contributions are 100% vested from the start.

4. SIMPLE IRA

A SIMPLE IRA is designed for small businesses with 100 or fewer employees. It offers a straightforward way for employers to provide a retirement plan, and it allows employees to make their own pre-tax contributions. 

Unlike plans such as the SEP IRA or Solo 401k that often favor business owners, a SIMPLE IRA focuses on building retirement savings for employees. Employers must make either matching or nonelective contributions for all eligible workers.

Eligibility

SIMPLE IRA eligibility applies separately to employers and employees. The rules ensure that the plan remains accessible to small businesses and that all qualifying employees receive contributions.

Employers

A SIMPLE IRA can be established when a business meets both conditions:

✅ Fewer than 100 employees
✅ No other employer retirement plan in place (such as a SEP IRA, Solo 401k, or 401k)

If the business grows beyond 100 employees, the plan may remain active for at least two more years.

📝 Note: After that two-year period, continued eligibility depends on the business returning to 100 or fewer employees.

Employees

Employees qualify when they:

✅ Earned at least $5,000 in any of the two previous years
✅ Are expected to earn at least $5,000 in the current year

Employers can choose to lower or remove this earnings requirement to broaden participation.

Contribution Limits

SIMPLE IRAs follow annual deferral limits set by the IRS.

✏️ Hypothetical Example: 

An employee age 62 could defer up to $21,750 in 2025 using the higher catch-up amount.

Employers must either match employee contributions (generally up to 3% of compensation) or make a 2% nonelective contribution for all eligible employees.

Investment Options

SIMPLE IRAs offer the same investment flexibility found in Traditional and Roth IRAs. Most custodians provide access to stocks, bonds, ETFs, and mutual funds.

Withdrawals

SIMPLE IRA withdrawal rules are similar to Traditional IRAs but with an important early-distribution distinction.

❌ Standard early withdrawal penalty: 10%

If the withdrawal occurs within the first 2 years of SIMPLE participation, the penalty increases to 25%. Penalty-free access begins at age 59½, and distributions are taxed as ordinary income.

5. Nondeductible IRA

A nondeductible IRA is a type of Traditional IRA that accepts after-tax contributions. Individuals generally use it when they do not qualify for a tax-deductible Traditional IRA contribution or a direct Roth IRA contribution. Even though the contribution itself does not reduce taxable income, the account still provides tax-deferred growth, which can benefit long-term retirement planning.

Contribution Limits

A nondeductible IRA follows the same annual contribution limits as Traditional and Roth IRAs.

✅ $7,000 for 2025
✅ $8,000 for individuals age 50 or older

Contributions are made with after-tax dollars.

📝 Note: You do not receive a deduction, but investment gains accumulate tax-deferred until withdrawn in retirement.

Investment Options

Nondeductible IRAs follow the standard IRA investment rules. Most custodians provide access to traditional market investments such as stocks, bonds, mutual funds, and ETFs.

Withdrawals

Withdrawals from a nondeductible IRA work similarly to Traditional IRAs, with one important distinction: the tax treatment reflects the after-tax basis.

✏️ Hypothetical Example: 

If an account contains $40,000 in contributions and $10,000 in growth, only the $10,000 is taxable when distributed under qualifying conditions.

6. Spousal IRA

A spousal IRA allows a non-working or lower-earning spouse to contribute to their own IRA using the working spouse’s earned income. This structure helps couples increase total retirement savings, even when only one partner earns income during the year. The account is owned and managed by the spouse who receives the contribution, giving them the ability to build retirement assets in their own name.

How It Works

Regular IRA rules require earned income to make a contribution. A Spousal IRA provides an exception by allowing contributions based on a spouse’s income instead. This support allows both partners to maintain retirement savings even during years when one person is not employed or earns very little.

📝 Note: The Spousal IRA itself is simply a Traditional or Roth IRA. The same tax rules, deduction rules, and withdrawal rules apply based on the type selected.

To Qualify for a Spousal IRA

Eligibility requires meeting all of the following conditions:

✅ The couple is legally married.
✅ They file a joint federal tax return.
✅ The working spouse has earned income at least equal to the combined IRA contributions made for both spouses.

✏️ Hypothetical Example: 

If the working spouse wants to contribute $7,000 to their own IRA and $7,000 to the Spousal IRA, they must have at least $14,000 of earned income for the year.

The non-working or lower-earning spouse remains the account owner. This creates a separate retirement account in their name, which follows the same contribution limits, investing options, and withdrawal rules as any Traditional or Roth IRA.

7. Self-Directed IRA

A self-directed IRA is an IRA that allows a broader range of investments than a typical brokerage IRA. Any Traditional or Roth IRA can be self-directed, and it follows the same eligibility, contribution limits, and withdrawal rules. The key difference is the ability to invest in alternative assets, provided the investment is permitted under IRS rules. 

Regular IRAs usually limit investors to stocks, bonds, mutual funds, and ETFs, while self-directed accounts expand those options.

Self-directed IRAs are subject to strict regulatory boundaries.

❌ Life insurance and most collectibles are prohibited.
❌ Transactions involving “disqualified persons” are not allowed.

Alternative Investments Allowed

Self-directed IRAs can hold assets that traditional custodians typically do not offer. The most common examples include:

✅ Real estate
✅ Private placements
✅ Certain limited partnerships or private debt arrangements

✏️ Hypothetical Example: 

A self-directed IRA may invest in a rental property, provided the IRA (not the account owner) receives all income and pays all expenses.

📝 Note: Before investing, confirm that the asset is not a prohibited investment and that the structure avoids prohibited transactions.

Contribution and Account Structure

Contribution limits for self-directed IRAs match the standard IRA limits and aggregate across all IRAs owned by the individual.

8. Custodial IRA

A custodial IRA is a Traditional or Roth IRA established for a minor and managed by an adult custodian. The account allows children to begin saving for retirement as long as they have earned income for the year. This structure helps young savers build long-term assets early, even though they cannot manage the account themselves yet.

The custodian (often a parent or guardian) controls the account until the child reaches the age of majority. This age is determined by state law and is usually 18 or 21. The custodian makes all investment decisions during this period. Once the minor becomes an adult, full account control transfers to them, and the custodian no longer has authority.

📝 Note: Contribution limits, investment rules, and withdrawal requirements follow the same guidelines that apply to Traditional and Roth IRAs.

Key Features of a Custodial IRA

✅ Minor must have earned income to contribute
✅ Custodian manages the account until age of majority
❌ Minor cannot make independent investment decisions before majority age

✏️ Hypothetical Example: 

A teenager earning income from a part-time job can contribute to a Custodial Roth IRA, with the parent managing the account until the child becomes an adult.

9. Rollover IRA

A rollover IRA is a Traditional or Roth IRA created specifically to receive funds from an employer-sponsored retirement plan. Individuals often use this structure when leaving a job because it allows them to consolidate savings and maintain tax advantages. When leaving an employer, available options typically include leaving the balance in the old plan (if permitted), rolling it into a new employer plan, rolling it into an IRA, or taking a distribution that may trigger taxes and withholding.

A designated Rollover IRA helps keep incoming rollover assets separate from regular contributions. This distinction can simplify record-keeping and may make it easier to move the funds back into a future employer’s plan if allowed.

Key Features of a Rollover IRA

✅ Same contribution rules, tax treatment, and investment options as any Traditional or Roth IRA.

✅ Helps maintain the tax-deferred status of employer plan assets.

❌ A distribution taken instead of a rollover may trigger taxes and possible penalties.

✏️ Hypothetical Example: 

Someone leaving a job rolls their 401k balance into a Rollover IRA to keep investments growing tax-deferred and to simplify account management.

Frequently Asked Questions About IRAs

Which IRA is the easiest to get?

Traditional and Roth IRAs are the simplest options for most individuals. Anyone with earned income can contribute to a Traditional IRA, and minors with earned income can participate through a custodial IRA. Roth IRAs follow income-based eligibility rules, but they remain widely accessible when limits are met.

Which IRAs are for business owners?

Business owners typically use either a SEP IRA or a SIMPLE IRA. A SEP IRA can be opened by self-employed individuals with or without employees. A SIMPLE IRA is available only to businesses with 100 or fewer employees and does not permit the employer to maintain another retirement plan at the same time.

Can you get a SEP IRA if you don’t have a business?

A SEP IRA requires self-employment income or business ownership. Someone who earns income as a freelancer or sole proprietor qualifies because they operate a business, even if there are no employees.

Which IRAs have RMDs?

Traditional IRAs, SEP IRAs, and SIMPLE IRAs all require minimum distributions beginning at age 73 for 2025. Roth IRAs do not require lifetime RMDs for the original owner, which makes them more flexible for long-term planning.

Which IRAs have a Roth option?

Roth treatment is always available through a Roth IRA. Employers may also offer Roth contributions within SEP IRAs and SIMPLE IRAs, depending on how the plan is structured. Availability of Roth features depends on the specific plan document and provider.

Wrapping Up

IRAs come in many forms, and each one serves a different purpose depending on your income, employment situation, or long-term goals. Traditional and Roth IRAs meet most everyday saving needs, while SEP, SIMPLE, self-directed, custodial, and rollover IRAs offer additional options when circumstances call for them. 

The rules and limits vary across accounts, but the objective remains the same: creating structured ways to build retirement savings over time. Take the time to understand these options to see how each IRA works and determine which options may fit into your broader financial plan.

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