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An Individual Retirement Account (IRA) is a tax-advantaged personal savings account you open through a bank, brokerage, or financial institution to invest for retirement. You choose the investments inside the account, contributions grow without being taxed each year, and the tax treatment of your withdrawals depends on which type of IRA you hold. The two primary types are the traditional IRA and the Roth IRA, and they differ on when your tax benefit arrives.
For 2026, the combined contribution limit across all your traditional and Roth IRAs is $7,500 per year. If you are age 50 or older, a catch-up provision raises that limit to $8,600.
A traditional IRA offers a potential tax deduction on contributions today and taxes your withdrawals in retirement as ordinary income. A Roth IRA offers no upfront deduction, but your qualified withdrawals in retirement are completely tax-free.
The choice between them depends on whether you expect your tax rate to be higher now or in retirement. If you expect to be in a higher bracket later, Roth wins. If you expect to be in a lower bracket later, traditional wins.
Anyone with earned income can contribute to a traditional IRA regardless of income level. Whether you can deduct those contributions is a different question. If neither you nor your spouse has a workplace retirement plan, your full contribution is deductible.
If one of you is covered by a workplace plan, the deductibility phases out at higher incomes. For a single filer covered by a workplace plan in 2025, the phase-out begins at $79,000 in modified adjusted gross income and disappears above $89,000.
Unlike a traditional IRA, you cannot contribute to a Roth IRA if your income exceeds the IRS limit. For 2024, single filers with modified adjusted gross income above $161,000 are ineligible, and married filers above $240,000 are ineligible. The phase-out for single filers starts at $146,000.
High earners who want Roth benefits but exceed the income limits can use the backdoor Roth strategy: make a nondeductible traditional IRA contribution and then immediately convert it to a Roth. This is legal under current IRS rules.
Take money out of a traditional IRA before age 59 and a half and you generally owe both ordinary income tax and a 10% early withdrawal penalty on the taxable amount. Roth contributions (not earnings) can be withdrawn at any time without penalty because you already paid tax on that money.
There are exceptions to the penalty. The IRS permits penalty-free early withdrawals for first-time home purchase (up to $10,000 lifetime), qualified higher education expenses, substantially equal periodic payments, and certain medical and disability situations.
Once you reach age 73, the IRS requires you to take minimum distributions from traditional IRAs each year. The amount is calculated using your account balance and IRS life expectancy tables. Roth IRAs have no required minimum distributions during the owner's lifetime, making them a useful estate planning tool.
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