Contributions to an IRA are tax deductible and one way for taxpayers to lower their taxable income and save money for retirement.

The deadline for contributions for the 2019 tax year is April 15.

The options for investments in an IRA are wide ranging and include stocks, ETFs, mutual funds and bonds. Depending on the type of account you have and your level of experience, options and futures are also allowed in IRAs, said Rick Swope, senior director, investor education of E-Trade  (ETFC) - Get Report, a brokerage company in Arlington, Virginia.

“IRAs help consumers save for retirement in tax-advantaged investment accounts,” he said.

Another advantage that IRAs have compared to 401(k) plans is the number of investment choices that are available.

“This is a major plus for investors who want more control, compared to a 401(k) where the universe of funds is limited to those offered by the plan,” Swope said.

In addition to being able to choose from more investments, investors often turn to IRAs when they’ve maxed out a 401(k) or 403(b) plan or if their employer doesn’t offer a retirement plan.

A major difference between an IRA and 401(k) is the contribution limit. The maximum IRA contribution is $6,000, or $7,000 if you're 50 or older. The contribution limits for 401(k) and 403(b) plans range from $19,500 to $26,000, depending on your age and tax status.

“Given today’s lifespans, an investor might need to rely on their retirement savings for a few decades, so it’s never too early to open a retirement account, contribute the maximum allowable amount and even consider more than one retirement savings vehicle,” Swope said.

Roth and traditional IRAs also have different tax treatments. When consumers invest in a Roth IRA, the taxes on the contributions are paid today, but the withdrawals are tax free when you retire. On the other hand, traditional IRAs allow you to deduct contributions now and pay taxes on the withdrawals in the future.

Since the assets in an IRA are meant for your retirement that may be several decades away, investors may not need to be as conservative as they may think, Swope said. If you’re starting with a small nest egg, ETFs or mutual funds have lower barriers to entry due to lower minimum amounts and fees and “give you a leg up in quick diversification,” he said.

Since retirement accounts are really long-term savings vehicles, it’s a good strategy to look at your account balance and allocations on a regular basis. But the money invested in an IRA is geared solely for retirement and the IRS imposes certain penalties if you withdraw from the account before you're 59½ years old.

Some investors also use short-term trading strategies by buying and selling ETFs in an IRA as a way to generate wealth.

“That may be a good idea if you’re experiencing success with those strategies,” Swope said. “Keep in mind, however, that trading losses are not tax deductible if they occur in an IRA.”

IRAs are phenomenal vehicles to shield your investments from capital gains and other taxes, said Derek Horstmeyer, an associate finance professor at George Mason University in Fairfax, Virginia.

Investors should allocate their most tax-inefficient vehicles to an IRA since these gain the most benefit from being placed in the IRA.

“This means if you hold high turnover funds or other funds that incur lots of taxes, they must go in your IRA,” he said.

Investors who own actively managed mutual funds because the portfolio manager makes good stock picks should allocate those in an IRA because the manager could change the positions of their fund often by buying and selling lots of different stocks, Horstmeyer said. This also applies to most small-cap mutual funds and high coupon bond funds since they spin off a lot in taxes. REITs should also go into your IRA because of their tax inefficient nature.

“Given the new tax law which opened up annuities to IRAs and other savings vehicles, if you are in a high tax bracket, then your annuities should be allocated to an IRA to shield the income taxes you will incur,” he said.

More and more baby boomer investors are working well into retirement years. The SECURE Act that was passed recently helps modernize legislation given the trends we’re seeing among today’s retiree population, Swope said. Some of the elements include: raising the required minimum distribution age to 72, repealing the maximum contribution age and allowing penalty-free withdrawals for childbirth or adoption-related expenses.

“Make sure to familiarize yourself with this legislation and talk to your tax advisor to learn more,” he said.