What Is an IRA and Why Should I Invest in One?



IRA stands for “individual retirement arrangement”. An IRA essentially works as an investment account that you withdraw investment profit from once you reach a certain age. There are many types of IRA accounts including Traditional, Roth and SEP IRAs.


Answers on This Page 

  1. What is an IRA?
  2. How does an IRA work in practice?
  3. What are the practical benefits of having an IRA?
  4. What are the different types of IRAs?
    • Traditional IRA
    • Roth IRA
    • SEP IRA 
    • Rollover IRA
  5. Takeaways


What is an IRA?

“IRA” stands for “individual retirement arrangement”. Simply put, an IRA is used as a tax-deferred investment attack to help its owner to save for retirement.


To open an IRA, you should head to your bank, a broker or with a robo-advisor. 


How does an IRA work in practice?

Once your IRA account is open, you’ll have to invest either pre-tax or after-tax dollars into stocks, bonds, ETFs (exchange-traded funds) or other assets.


Overtime, this investment will grow and gain interest and by the time retirement comes, you will have a good sum of money at your disposal.


There are certain restrictions on IRA accounts depending on the type

  • Withdrawal rules 
  • Annual contribution limits

What are the practical benefits of having an IRA?  

  • An IRA can lower your tax bill (depends on tax bill)
  • Investment options that your work plan may not offer 
  • Additional way to save in addition to 401k and pension

What are the different types IRAs?

Traditional IRA

  • Tax-deductible (usually)

Traditional IRAs are usually tax-deductible. This means that if you invest $3,000 into your IRA account, you can take $3,000 away from your taxable income!

  • Annual Contribution Limits 

As of 2022, an IRA account holder under 50 years old can contribute $6,000 per year. As of
2023, you’ll be able to invest $6,500 per year.


For those who are 50+, you’re allowed a to invest $1,000 more annually ($7,000 in 2022 & $7,500 in 2023).

  • Married Couples

If you or your spouse already has a retirement policy from their job, the total amount you can contribute will be reduced and eliminated once you reach a certain income. At that stage, contributions can still be made but will no longer be tax-deductible. 

  • Deduction Limits 

IRA owners usually start withdrawing from their accounts when they are 59 ½ years old. Once you reach 72 years of age, you must start withdrawing money from your IRA account.


NOTE: Withdrawals are permitted before 59 ½ years, but owner will have to pay a 10% penalty


Roth IRA

  • Not tax-deductible 

As a reminder, this means that contributions can’t reduce the taxes applied on your income.

  • Tax-free withdrawals and investment gains 

The withdrawals that you eventually make on your retirement account will not have any taxes applied on them! The same goes for an interest accumulated from your investments.


This plan is great for a couple of reasons

  • A way to pay off taxes now rather than later 
  • A way to help combat inflation 

Interest from investments will add on the original capital as opposed to just saving the same amount of money for 30+ years.

  • Annual Contribution Limits 

In 2022, anyone under 50 can invest $6,000 a year and after 2023, it will be $6,500.


For those over 50, you can deposit $7,000 in 2022 and will be able to deposit $7,500 in 2023.



  • If you have a Traditional AND a Roth IRA, there’s a combined limit that you cannot go over. For example, if you had both accounts, you could only invest $6,000 in total rather than $6,000 each.
  • There are also other IRA income limits depending on your situation. Contact one of our agents HERE to find out what this means for you.


SEP IRAs are for people who are self-employed or own small businesses with few or no employees.


  • Tax-deductible
  • Tax-deferred Investments

Yes, your annual contributions are tax-deferred, meaning that zero taxes will be applied on them until you finally make withdrawals.

  • Annual Contribution Limits

For 2022, contributions are limited to 25% of your income or $61,000. In 2023, they can go up to $66,000.


NOTE: as a small business owner, you must contribute to the IRA accounts of your employees. Call one of our agents HERE to get more information.


SIMPLE (Savings Incentive Match Plan for Employees) IRA

SIMPLE IRAs are for small businesses with less than 100 employees.


  • Annual contributions are tax deductible 
  • Tax-deferred contributions 

Like SEP IRAs, contributions will be tax-deferred until retirement when withdrawals are made.

  • Employee Contribution Limits

There are contribution limits applied when you invest money into your employees’ retirement accounts which is mandatory.


Currently, for those under 50, maximum contributions will be $14,000 per year, and in 2023, it will be $15,500. If you are 50+, you can make-up additional $3,000 in catch-up contributions for now but in 2023, it will be $3,500.


Rollover IRAs 

This type of IRA is used when you transfer eligible assets from an employer sponsored plan into an IRA. For instance, you might transfer assets from a 401(k) into a traditional IRA.




IRAs or individual retirement arrangements can be a very useful way to save for a comfortable retirement and combat inflation by earning interest from stock market investments. 

If you want to start the process or still have inquiries, contact any one of our team members HERE.