Types of IRA Investments

An individual retirement account (IRA) is a class of investment accounts intended to provide you with income upon reaching a stipulated age, states Meigs & Meigs. All types of IRA investments in the United States must meet the rules and regulations of the Internal Revenue Code. This area is highly regulated, with penalties and interest being assessed for noncompliance.

Traditional IRA

According to the IRS, a traditional IRA is defined as "Any IRA that is not a Roth IRA or SIMPLE IRA." Anyone can have a traditional IRA, whether or not you have any other types of retirement plans. You are allowed to convert a traditional IRA into a Roth IRA. "Your traditional IRA can be an individual retirement account or annuity. It can be part of either a simplified employee pension (SEP) or an employer or employee association trust account."
An employer and employee association trust account is one form of a traditional IRA cites the IRS. Here, "your employer or your labor union or other employee association can set up a trust to provide individual retirement accounts for employees or members." The requirements for these accounts are the same as for traditional accounts.
A SEP (simplified employee pension) plan is a written arrangement whereby your employer makes "deductible contributions to a traditional individual retirement account" set up for you. The same withdrawal and tax rules apply for both types of IRAs, generally.
You can start a traditional IRA account, and make contributions to your account if you are not 70-1/2 years of age by the end of the year. Another IRS requirement states you (or your spouse, if you filed a joint income tax return), need to receive taxable compensation during the year.

SIMPLE IRA

According to the IRS, a SIMPLE IRA, or savings incentive match plan for employees, is "a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their employees." It involves a salary reduction agreement whereby you can reduce your compensation by a certain amount each pay period and your employer matches that amount.

Roth IRA

A Roth IRA is an individual retirement plan that is essentially subject to the rules that apply to a traditional IRA. It can be either an account or an annuity, according to the IRS.
Your Roth IRA needs to be designated as such when it is set up in order for it to meet IRS stipulations. According to the IRS, "neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA." You can set up your account at any time.
There are limits on your contributions into your Roth IRA cites the IRS in Publication 590 (Individual Retirement Account Arrangements). For instance, you cannot deduct contributions to a Roth IRA on your federal income tax return. The amount of your adjusted gross income affects the amount you can contribute to your investment. Contributions can be made to your Roth IRA after you reach age 70 ½ and you can leave amounts in your Roth IRA as long as you live. There is no age limit for making contributions to your Roth IRA. The timing of your contributions (when you are allowed to make contributions) to your Roth IRA are limited, however, according the IRS.