The Best Traditional IRAs
Traditional IRAs are tax sheltered investment accounts made for helping you save money for your retirement. But, which IRAs are the best? This largely depends on your financial goals and investment experience. Before you invest in an IRA, consider what you want your IRA to do for you and how much time you are willing to put into researching and understanding the investments you invest in. Then, you'll be able to choose the best IRA for your needs.
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CD IRA
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A CD type IRA is an IRA that invests in time deposits issued by a bank. These deposits, called bank CDs, allow you to invest your money into investments that the bank makes for its own profit. The bank shares some of this profit with you in exchange for the use of your money for a set period of time. When the bank is finished with your money, it returns it to you. Interest may be paid each month or it may be paid only when the CD fully matures. This largely depends on the bank and the CD investment. These IRAs are best if you want FDIC guarantees as well as a fixed rate of return on your IRA.
Annuity IRA
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An annuity IRA is an IRA held with an insurance company or a bank that invests in an annuity. An annuity is an insurance policy, so even if you obtain an annuity IRA at a bank, the annuity is issued by an insurance company. All of the guarantees contained in the annuity, if any, are guaranteed by the issuing insurer, which may not be the same institution that you purchase the IRA from. Annuity IRAs that are fixed interest annuities pay a fixed rate of return for as long as you hold the annuity. Variable annuity IRAs pay interest based on the performance of mutual funds inside of the annuity. With both types of annuities, you are offered the option to convert your savings to a guaranteed monthly income when you retire. This turns your IRA into a guaranteed income tool that may be useful if this is what you want from your IRA. Annuity IRAs make guarantees on income at retirement that CD IRAs do not. More specifically, you will generate more money in income from an annuity that is converted to guaranteed payment options than you will generate from a CD annuity, all other things being equal.
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Mutual Fund IRA
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A mutual fund IRA is an IRA that invests primarily in mutual funds. A mutual fund is a collection of stocks, and sometimes bonds, that share a common investment objective. These investments are not guaranteed. Because of this, the performance of the mutual fund drives the ultimate value of your IRA at retirement. You could end up with significantly more or less than you contribute to your IRA when you retire. These IRAs are best if you want higher investment returns than what are possible with a fixed annuity IRA or bank CD IRA, and you do not need or want the guaranteed income option of a variable annuity IRA.
Self-Directed IRA
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A self-directed traditional IRA is best for when you want to control the investment options of your IRA directly. Self-directed IRAs may invest in a variety of investments not offered by your broker. The self-directed IRA allows you to control the investment options and buying and selling of assets directly. You may purchase real estate, precious metals and other assets inside of a self-directed IRA where this is not possible with other types of IRAs.
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