Roth IRA vs. Variable IRA

When you deposit money into a Roth IRA, you pay tax on it for the year you earn it. The money continues to grow with additional deposits, interest or dividends earned. When you retire, you can withdraw the money in a lump sum or in payments, but it's not taxable income for the years when you withdraw it. Traditionally, Roth IRAs are more suitable for people who expect to continue making a considerable amount of money after retiring. Traditional, SEP and SIMPLE IRAs allow a tax deduction the year you make the deposit.

Basically speaking, a Variable IRA can be set up similar to either a savings account or a certificate of deposit (CD). For savings accounts, you may make periodic deposits throughout the year, not to exceed that year's limit established by the IRS. The interest it earns varies with economic conditions. As a CD, you put a specific amount in for a specific period of time. and the interest rate also varies. Some banks allow you to combine the two for a CD that you can add to, which matures on a specific date with variable interest.

If you have a Variable IRA with a maturity date as part of your Traditional, Roth, SEP or SIMPLE IRA, you may renew it with the same conditions or roll it over into another account. If interest rates are particularly high, you may want to lock in a higher rate in a fixed IRA for as long as you can. If interest rates are particularly low, you may want to leave it variable until interest rates rise. Roth and Traditional IRAs are available to most, but SEP and SIMPLE are for small businesses or self-employed individuals.

The IRS limits the amount of money you can put into IRAs each year, but not the number of accounts you can have. With a combination of Variable IRAs and fixed rate IRAs in different types of IRA accounts (Traditional, Roth, SEP and SIMPLE), your earnings may be more stable as time goes by due to the diversification; as one type's advantages increase, the other type's decrease. (Of course, this isn't always the case; it depends on what type of investments you have, as well as general economic conditions.) Although an early-withdrawal penalty exists for any IRA, you may want to have a specific IRA with a smaller amount that you may withdraw in case of an emergency with less loss.