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Disclaimer: I am not a certified financial professional.  All articles and posts are opinions expressed by me, a contributor to the Common Cents Finance platform.  The information provided is not a research report or financial advice.  It should not be used as the basis to buy or sell a security, nor is it an offer to buy or sell a security.  This article generates revenue through affiliate commission at no cost to you.

Individual retirement accounts, or IRAs, are great for retirement planning. However, many young investors are unaware of what these funds are. As a result, they are missing out on the benefits they provide. Creating an IRA is very simple to do, and they can be created by all young investors to secure a safe retirement.

The only thing you need is to know where and how to start. Luckily for you, this article goes into that and more.

What is an IRA?

An IRA is just one of many retirement accounts you can open. To learn about others, click here to read A Beginner’s Guide to Retirement Planning.

It is a personal retirement fund that provides tax advantages for the investor. With these accounts, withdrawals cannot start until you are 59½ years old. If withdrawals start earlier, then there will be a 10% penalty fee in addition to tax payments. IRAs also have contribution restrictions, meaning that you would have a limit on how much you can invest in one.

Compared to other retirement plans, like 401(k)s and pensions, IRAs have much more freedom of choice. With these, you could invest in any asset that you wish. There are no restrictions in that regard.

There are various types of IRAs, each of which has its own tax advantages. In this article, I will go over four IRAs, which seem most relevant.

Roth IRA

A Roth IRA is the best one to open when you are younger. The contributed money is post-tax, which means that it is TAX-FREE when it is withdrawn later.

When you are younger, you will have a lower income, thus be in a lower tax bracket. This means that your investments would be taxed at a lower rate now and not be taxed at all later when you withdraw.

There are unlimited investment options with this plan, and the investments are all self-directed.  The individual has complete say in where the money is being invested. So, you would be able to invest in individual stocks, like StarbucksApple, and Tesla.

There are some drawbacks to the Roth, however.  An individual has to be 59½ before they can start withdrawing their gains; if done before so, there is a 10% penalty, in addition to the tax on the gain.  This could deter individuals who are looking to retire at an earlier age. If done after 59½, there is no 10% penalty or tax applied. 

Also, there is a limit on how much an individual can contribute to the IRA annually. This would be a negative aspect for individuals who have large incomes who want to contribute more.

There is no minimum required distribution plan for this account. You can take out as much or little as desired. You could also withdraw prior to the required age for emergencies without penalty, which can make it like an emergency fund.

Traditional IRA

A Traditional IRA is the opposite of a Roth.  For these, the contributed money is untaxed, which means that the later distributions will be taxed accordingly.

This would be more beneficial for individuals who are in high-income brackets and expect to be in a lower one in retirement.

Like the Roth, one can invest in any asset class with the traditional (i.e. real estate, stocks, bonds, etc.).

The drawbacks for a traditional IRA are the same as a Roth: there is a penalty for withdrawing early and a limit to annual contributions.

This plan is not ideal if you are younger, because you want to take advantage of the fact that you are in a lower tax bracket.

Spousal IRA

A spousal IRA is geared towards non-earning spouses. Unlike the Roth and the Traditional, there are specific requirements for this plan.  Firstly, the earning spouse must make a contribution to their own IRA before the Spousal IRA. Additionally, taxes would need to be filed jointly.

This plan would take advantage of tax-deductibility and ensure a safe retirement for your partner.

The negatives for this account are the same as those for the other IRAs (age restriction, contribution limit).

This plan is not necessarily applicable to younger readers; however, it never hurts to learn all available options.


A SEP IRA can stand for Simplified Employee Pension IRA or Self-Employed IRA. This plan is for individuals who are self-employed, since they would not have a company-sponsored retirement plan available.

This can be used as a tax shelter, a means of reducing total taxable income to pay less in taxes.

The age and contribution restrictions are the same as the other IRAs.

This plan is only applicable to those who own their own company to provide a retirement plan for themselves and their employees.

Where Can I Open an IRA?

Unfortunately, at this time, Robinhood does not offer IRA or retirement options, but I would predict that this will change very soon. You could still create an account now, with the hopes that they add this feature in the future. You would also receive a free stock when you sign up. To open a Robinhood account and collect that free stock, click here.

Aside from Robinhood, basically every major brokerage offers IRA options.  The brokerage WeBull supports IRAs, and they provide commission-free trading and two free stocks when you sign up and deposit $100.  If you are interested in creating an IRA and collecting two free stocks with WeBull, click here to sign up.

Betterment is another trading platform that offers IRA options.  The platform also offers a high-interest savings account, which could also be an interesting option for an emergency fund.  It should be noted that, while Betterment is commission-free, they do charge a yearly fee of 0.25%.  If you are interested in creating an account with Betterment, click here.

If you do not want to use WeBull or Betterment, there are other options available.  Brokerages, such as Fidelity and Charles Schwab, also offer IRAs.  So, feel free to do your own exploring to see with which brokerage you’re most comfortable.


Retirement planning can be confusing for many young investors, but it does not have to be! Hopefully, this overview of IRAs helps make the idea of retirement much more clear. For younger investors, I would recommend opening a Roth IRA to take advantage of its tax advantages. You do not have to put a significant amount of money into the account. Even the smallest contributions now can make your retirement much safer and more enjoyable.

Creating an IRA is the first step in retirement planning for a young person. So, I recommend opening one now to take full advantage of the provided tax benefits!

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Post Author: Anthony Crincoli

Anthony is the Founder and Lead Content Creator for Common Cents Finance. Away from the platform, Anthony is a CPA Candidate and an auditor for a Big Four public accounting firm. He has a passion for personal finance and looks to promote financial literacy whenever and however he can.

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