The four most common types of Individual Retirement Accounts are known as traditional, Roth, SEP and SIMPLE, according to TIAA-CREF.org. Of these, the traditional and Roth IRAs are universally available, whereas SEP and SIMPLE are intended for business owners. Although these plans feature a number of similarities, they have key differences; for example, Roth IRAs have no contribution age limits, whereas traditional IRAs freeze contributions once an owner reaches age 70.5, notes Vanguard.com.
Contributions to a traditional IRA are generally tax deductible. Traditional IRAs are subject to income tax only when customers come to withdraw their money. Roth IRAs are not tax deductible, but earnings can be accumulated free of taxation. Unlike traditional IRAs, withdrawals from Roth IRAs are not subject to income tax. Roth IRAs are considered better suited for people who are over the age of 70 and expect to continue investing to leave assets to heirs. Traditional IRAs are better suited to people who do not expect to make a withdrawal before the age of 60, according to TIAA-CREF.org.
SEP IRAs are aimed at people whose income comes from self-employment or ownership of a small business. This type of IRA allows such customers to reduce their taxable income while also contributing to a retirement fund. SIMPLE IRAs allow small business owners to contribute to their employees' retirement funds as well as their own. These IRAs are especially suited to employers with fewer than 100 employees.