What is an IRA?
An Individual Retirement Account (IRA) is a tax-advantaged account you open on your own (not through an employer). IRAs come in two main flavors: Traditional and Roth, each with different tax benefits.
IRAs are powerful tools for retirement savings, especially if you don't have access to a 401(k) or want to save beyond your employer plan's limits.
2026 IRA Contribution Limits
| Age | 2026 Limit | Notes |
|---|---|---|
| Under 50 | $7,500 | Annual maximum contribution |
| 50 and older | $8,500 | Includes $1,000 catch-up contribution |
Same Limit for Both Types
Traditional vs Roth IRA
| Feature | Traditional IRA | Roth IRA |
|---|---|---|
| Tax on contributions | Deductible (reduces taxable income) | Not deductible (after-tax) |
| Tax on growth | Tax-deferred | Tax-free |
| Tax on withdrawals | Taxed as ordinary income | Tax-free (if qualified) |
| Required Minimum Distributions | Yes, starting at age 73 | No RMDs during your lifetime |
| Early withdrawal penalty | 10% + taxes on full amount | 10% + taxes on earnings only |
| Income limits | No limits (deductibility may be limited) | Yes, for contributions |
Which IRA is Better for You?
Choose Traditional If...
- You expect to be in a LOWER tax bracket in retirement
- You want to reduce your taxable income NOW
- You're near retirement and need current deductions
- You're in a high tax bracket currently
Choose Roth If...
- You expect to be in a HIGHER tax bracket in retirement
- You're young and have decades of tax-free growth ahead
- You want flexibility (contributions can be withdrawn anytime)
- You want to avoid RMDs in retirement
- You're in a lower tax bracket now
Not Sure? Do Both!
Roth IRA Income Limits (2026)
Unlike Traditional IRAs, Roth IRAs have income limits for contributions:
| Filing Status | Full Contribution | Phaseout | No Contribution |
|---|---|---|---|
| Single | Under $150,000 | $150,000 - $165,000 | Over $165,000 |
| Married Filing Jointly | Under $236,000 | $236,000 - $246,000 | Over $246,000 |
Backdoor Roth
Withdrawal Rules
Traditional IRA
- Withdrawals before 59½: 10% penalty + income tax
- Withdrawals after 59½: income tax only (no penalty)
- RMDs start at age 73 (must withdraw minimum amounts)
- Exceptions: first home, education, medical expenses, disability
Roth IRA
- Contributions: withdraw anytime, tax-free, penalty-free
- Earnings before 59½: 10% penalty + tax (with exceptions)
- Earnings after 59½ (5+ year account): completely tax-free
- No RMDs ever — leave it to heirs if you want
The 5-Year Rule
IRA vs 401(k)
| Feature | IRA | 401(k) |
|---|---|---|
| 2026 Contribution Limit | $7,500 ($8,500 if 50+) | $24,000 ($31,500 if 50+) |
| Employer Match | No | Yes (if offered) |
| Investment Options | Almost unlimited | Limited to plan options |
| Fees | You choose (can be very low) | Varies by employer |
| Access | Open anywhere | Through employer only |
Best strategy: Contribute enough to 401(k) to get full employer match, then max out IRA, then go back to 401(k) if you can save more.
Where to Open an IRA
- Fidelity — great for beginners, no minimums
- Vanguard — low-cost index funds, investor-owned
- Charles Schwab — excellent customer service
- M1 Finance — automated investing, fractional shares
- Betterment — robo-advisor, hands-off approach
Look for Low Fees
Frequently Asked Questions
Q: Can I have both a Traditional and Roth IRA?
A: Yes! But the total contribution across both can't exceed the annual limit ($7,500 in 2026, or $8,500 if you're 50+).
Q: Can I contribute if I have a 401(k)?
A: Yes, you can have both. However, if you have a 401(k) and high income, your Traditional IRA deduction may be limited or eliminated.
Q: When is the contribution deadline?
A: You have until the tax filing deadline (typically April 15) to make contributions for the previous year. So you can contribute to your 2025 IRA until April 15, 2026.
Q: Can I convert Traditional to Roth?
A: Yes, this is called a Roth conversion. You'll pay income tax on the converted amount, but future growth will be tax-free. Good strategy if you expect higher rates later.
Q: What happens to my IRA when I die?
A: It goes to your designated beneficiaries. Spouses have more flexibility. Non-spouse beneficiaries generally must withdraw within 10 years under current rules.
Q: Can I use IRA money for a house?
A: Yes, first-time homebuyers can withdraw up to $10,000 from an IRA penalty-free (you'll still pay tax on Traditional IRA withdrawals). Roth contributions can always be withdrawn.
IRA Checklist
- Decide Traditional vs Roth based on your tax situation
- Open an account with a low-cost provider
- Choose investments (target date fund or index funds)
- Set up automatic contributions
- Max out if possible ($7,500 in 2026)
- Consider Roth conversion if you're in a low-tax year
- Name beneficiaries and keep them updated
This calculator provides projections based on assumed constant returns. Actual results will vary. Tax rules are complex and subject to change. This is educational content, not tax or financial advice. Consult a professional for personalized guidance.