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Which IRA is Best for You?

May 24, 2024
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Those looking to start a retirement account have a range of IRA options to choose from – including traditional, Roth, spousal, SEP, simple, nondeductible and self-directed. IRA choices aren’t one size fits all. Many different conditions might affect your choice of IRA. Elements such as your income bracket or the type of business you work for might affect what kind of IRA will work best for you.

What Are the Two Main Types of IRAs?

If you’re like many people enrolling in their first IRA, retirement may seem incredibly far off. But that’s why you’re investing now. The earlier you invest, the more compound interest your investment can earn. So while you might not have your vacation home picked out quite yet, starting a retirement account now will help you live the life you want to live when your working days are through.

There are two main types of IRA accounts: traditional and Roth. A traditional IRA lets an individual put untaxed money into an account that is tax-deferred until a withdrawal is made. Roth IRA contributions are made with after-tax income but are not taxed once a withdrawal is made. Any withdrawals made before the retirement age of 59 ½ will earn a penalty of 10%.

Exploring Certificate IRAs

People interested in investing in IRA certificates of deposits, or CDs, are usually looking for investments with low risk. They may also like the short-term investment periods of five to ten years. With no penalty for withdrawal after the established time of investments, the money from a certificate of deposit can be used before the official date of retirement.

However, in recent years, CDs have not been the low-risk staple of the past due to high inflation. Some prefer to keep their money out of IRA CDs because once money has been invested in a CD, it is there for a specific period of time with no withdrawal option, even with a penalty. During high inflation, the APY rates of most CDs are unable to keep up with the federal interest rates, wearing away at the purchasing power of the CD investment.

While they may be less popular options in times of inflation, when you put money into a CD, you know what you’re getting. Certificate IRAs come with fixed interest rates, predictable returns and are historically low risk. Those who are closer to retirement may be more interested in investing

in IRA CDs as the investment is more predictable and less volatile than the money market. If you’re interested in learning more about a certificate IRA, contact us and we’ll help you get started.

Unveiling Money Market IRAs

Deciding on the best IRA for you depends on where you are on your retirement-saving journey. Money Market IRAs are FDIC insured. DCU’s Money Market account offers a tiered dividend based on the amount of money you have in your account. The greater your balance, the better your interest rates will be.

While there are minimum balances to keep it open, money can be taken out of a money market account. Money can be rolled over and transferred, making this IRA option great for those who require flexibility. While it’s relatively low interest, this type of IRA has a moderate rate of return. This is the best IRA for you if your savings goal falls within the next four to five years and you’re looking for an investment that’s both low-risk and liquid.

Delving Into Savings IRAs

A savings IRA account allows you to make flexible contributions, which makes it great for those with variable incomes. Unlike other IRAs, the savings IRA allows you to make withdrawals on your contributions. You can only access the money that you have contributed. The earnings on your IRA won’t be available until you’re of retirement age. While there’s no tax deduction for the money that goes into a savings IRA, you won’t be taxed on the withdrawals that come out of the account.

People like this type of IRA because of the low risk, however, in times of inflation, the lower interest rates may not be able to keep up with high interest rates, lowering your purchasing power and the dividends that the IRA will earn over time. The low minimum balance required for DCU’s savings IRA makes this a good option for people who might need to access their money and can’t contribute a lot of money at a time.

Factors to Consider When Choosing an IRA

When you’re choosing an IRA, it’s important to consider a range of factors including your financial goals, your income, how close you are to retirement and how diverse your investments are. Read below for more information on each consideration.

Your Financial Goals

Short-term: Those looking to save for short-term financial goals will want to consider an account that doesn’t carry penalties for early withdrawal such as a money market account.

Long-term goals: If you can set it and forget it over the long term, then an IRA account with tax benefits such as a traditional or Roth IRA might be the best IRA for you.

Your Timeline

Retirement Age: Those who are investing money closer to retirement age will want to invest in lower-risk assets while those who are further out from retirement can invest in accounts that might fluctuate with the economy.

Plans: What do you want from retirement? How much money will you need? How close are you to needing that money? The plan you set for retirement will affect what type of IRA you’ll need. Check out DCU’s retirement planning calculator to help you make this plan.

Your Risk Appetite

Conservative: Different types of IRA accounts have different amounts of risk. Because of their diversity, conservative accounts typically offer lower dividends. They are also less likely to lose money in the stock market. People who can’t afford to let their money ride the natural ups and downs of the market over the decades might prefer a money market account.

Aggressive Approach: Those looking for a more aggressive investment approach might look into a self-directed IRA or invest in the stock market themselves. However, it’s strongly recommended that anyone interested in the aggressive approach should seek the services of a financial advisor.

Balancing Risk and Reward: When choosing an IRA, look for an account that balances the safety of your funds with a high enough interest rate to keep your money growing.


Creating a Balanced Portfolio: Investing in a range of options such as stocks, bonds and CDs can help your money thrive in many economic situations. CDs might suffer during times of inflation but your stocks will thrive. When the economy turns and stocks lose steam, that’s when your CDs come in to provide support for your portfolio.

IRA Tax Implications

Traditional: When you put income into a Traditional IRA account, it receives a tax break. While the money is taxed when you withdraw from your account, it is taxed at the income bracket you are in while making the withdrawal, making this the best type of IRA for those who think they’ll be taxed at a lower rate when they’re retired rather than when they’re working.

Roth IRAs: The money you put into a Roth account does not have a tax break, however, there are still tax benefits to choosing a Roth IRA. Roth allows for tax-free growth. Meaning? The withdrawals that you take from your Roth IRA in retirement are completely tax-free, dividends and all.

Eligibility: Contributing to a Roth IRA has income limits based on modified adjusted gross income (MAGI). These limitations change over time, so before making your decision, check whether your income is over the limit.

Contribution limits: Traditional IRAs don’t have income limits, but the amount of income you can put away and have deducted from your taxes is limited. Roth IRAs also come with contribution limits depending on your age.

Frequently Asked Questions About Selecting an IRA

  • Can I Lose Money with Savings IRAs?
    Any investment comes with some risk, however, savings IRAs are a very safe choice. When balancing risk with reward, be sure to choose an investment that has a high enough return that it’s keeping up with average rates of inflation to make sure the money in your account is maintaining purchasing power.
  • What Happens if I Need to Withdraw Early?
    Withdrawing early from both traditional and Roth IRAs comes with a 10% early withdrawal fee.
  • Are There Penalties for Exceeding Contribution Limits?
    If you exceed the contribution limits of your IRA, those amounts will be taxed at 6% yearly for the extent of the time that the excess money remains in the account.
  • Can I Have Multiple Types of IRAs Simultaneously?
    Yes. In fact, having more than one IRA can diversify your portfolio, protecting your savings. While having multiple IRA accounts is a good idea, it’s important to remember that all your contributions should stay under the annual limit across all accounts to avoid the 6% taxation mentioned above. 

The Best IRA for You

There’s no one-size-fits-all type of IRA. People begin saving for retirement at different ages. They might be business owners. They might have different income levels. They might have different needs once they retire. All these factors decide which IRA option (or options) would be best for your retirement plan.

DCU offers financial counseling and planning help to its members. If you’re interested in getting hands-on expert guidance with your retirement plan, you can get started by learning more about becoming a DCU member. Here, you’ll find valuable information on what you need to know about retirement as well as IRA calculators to help you form a retirement plan.

While retirement may seem like a distant dream to many people seeking out an IRA for the first time, you’ll be happy that you did your research and planned ahead when it’s time to leave the workforce. Creating a retirement plan and choosing the best type of IRA for your unique situation can ensure that your golden years are comfortable and secure. Want help visualizing your future? Contact DCU today to see how we can help you start your retirement savings journey on the right foot!

Please note, membership is required to open a DCU retirement account. Visit our membership eligibility page for more information.
This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.