IRA Accounts: The Complete Guide
Traditional vs Roth, contribution limits, tax strategies, and exactly which IRA makes sense for your situation. This is retirement investing for people who don't have a 401(k)—or want to save even more.
Why IRAs Are Still Incredibly Powerful
Look, everyone talks about 401(k)s, but IRAs are where things get interesting. You have complete control over where you invest—no being limited to whatever funds your employer picked. Lower fees, better options, and in many cases, better tax treatment.
Even if you have a 401(k), you should probably also have an IRA. The contribution limits stack, which means more tax-advantaged space for your money to grow. And if you're self-employed or your employer doesn't offer a retirement plan? An IRA might be your primary wealth-building tool.
The Math That Matters
Max out a Roth IRA ($7,000/year) from age 25 to 65 at 8% returns? That's $2 million. Tax-free. Every single penny. And you only put in $280,000. That's why people who understand IRAs max them out first, before anything else.
2026 IRA Contribution Limits
| Account Type | Under 50 | Age 50+ | Important Notes |
|---|---|---|---|
| Traditional & Roth IRA | $7,000 | $8,000 | Combined limit across all IRAs |
| SEP IRA | Up to $69,000 | Up to $69,000 | 25% of compensation or $69k |
| SIMPLE IRA | $16,000 | $19,500 | Plus employer match |
Types of IRAs Explained
Four main options, each with different rules and advantages. Here's what you need to know.
Traditional IRA
Contribute pre-tax money now, pay taxes when you withdraw in retirement. Perfect if you want to lower your tax bill today and expect to be in a lower tax bracket later.
- Immediate tax deduction
- Tax-deferred growth
- No income limits to contribute
Roth IRA
Pay taxes on contributions now, but every penny you withdraw in retirement is completely tax-free. The holy grail of retirement accounts if you qualify.
- Tax-free withdrawals
- No required distributions
- Can withdraw contributions anytime
SEP IRA
Simplified Employee Pension for self-employed folks and small business owners. Lets you sock away way more than a regular IRA—up to 25% of your income.
- Much higher limits
- Easy to set up
- Flexible contributions
SIMPLE IRA
For small businesses with under 100 employees. Lower contribution limits than SEP but includes employer matching. Simple to administer, hence the name.
- Employer match included
- Lower admin costs
- Easy compliance
Roth IRA vs Traditional IRA: The Real Differences
This is the question everyone asks. The answer? It depends on your tax situation now versus retirement. Let's break it down.
| Factor | Traditional IRA | Roth IRA | Usually Better |
|---|---|---|---|
| Contributions | Tax-deductible (lowers current taxes) | After-tax (no immediate benefit) | Traditional |
| Withdrawals | Fully taxed as ordinary income | Completely tax-free | Roth |
| Income Limits | None to contribute | Phases out at $146k-$161k single | Traditional |
| Age 73 RMDs | Required minimum distributions | No RMDs ever | Roth |
| Early Access | Penalties before 59½ | Can withdraw contributions anytime | Roth |
Young Professional (Age 28)
Decades of tax-free growth worth more than current deduction. Your income will probably be higher in retirement.
Peak Earner (Age 45)
Save 35% now, pay 24% later. That's an 11-point spread—take the deduction.
Late Career (Age 55)
Do both. Traditional for immediate savings, Roth for tax diversification. Hedge your bets.
Income Limits You Need to Know
Here's where it gets tricky. Make too much money, and you can't contribute to a Roth IRA directly. Traditional IRAs don't have contribution limits, but your deduction might phase out if you're covered by a workplace retirement plan.
The good news? There are workarounds. The "backdoor Roth" lets high earners contribute to a Traditional IRA (no income limit) and immediately convert to Roth. It's perfectly legal and surprisingly common.
2026 Roth IRA Income Phase-Outs
Single Filers
$146,000 - $161,000Deduction phases out $77k-$87k if covered by workplace plan
Married Filing Jointly
$230,000 - $240,000Deduction phases out $123k-$143k if covered by workplace plan
Married Filing Separately
$0 - $10,000Limited deduction if covered by workplace plan
Getting Your Money Out
Understanding withdrawal rules is crucial. Mess this up and you could lose 40% of your money to taxes and penalties.
Traditional IRA
Income tax + 10% penalty on everything
Income tax, no penalty
Must start withdrawals at 73
First home ($10k), education, medical
Roth IRA
Contributions anytime tax-free, earnings taxed + penalty
Everything completely tax-free (if account 5+ years old)
Never—leave it to your heirs if you want
Contributions always accessible
Early Withdrawal Reality Check
Withdraw $20,000 from a Traditional IRA at age 40 in the 24% tax bracket? You'll pay $4,800 in income tax plus $2,000 in penalties. You keep $13,200. That $20,000 would have been worth $186,000 by age 65 at 8% growth.
Translation: That early withdrawal actually costs you $172,800. Don't touch your IRA until retirement unless it's truly an emergency.
Common IRA Mistakes That Cost Thousands
These errors are easy to make and incredibly expensive to fix. Learn from other people's mistakes.
Not Starting Early Enough
CriticalA 25-year-old investing $500/month in a Roth IRA will have $1.4 million by 65. Wait until 35? Only $650,000. Start today, even with just $50/month.
Choosing Wrong IRA Type
HighIf you're young and in the 22% or 24% bracket, Roth is usually better. High earners in 32%+ brackets should lean Traditional. When in doubt, do the math or split the difference.
Missing the Annual Deadline
HighYou have until Tax Day (April 15) to contribute for the previous year. Miss it, and that contribution slot is gone forever. Set a calendar reminder.
Investing Too Conservatively
MediumIf retirement is 20+ years away, you should be mostly in stocks. A 30-year-old in 100% bonds will have maybe 40% of what they could have had in stocks. Time is your friend.
What Maxing Out Your IRA Actually Means
Let's look at what happens when you consistently max out your IRA over different time periods.
The power of starting early
Still excellent, but notice the gap
Better late than never
The Takeaway
That 25-year-old will have $1.2 million MORE than the 45-year-old, despite only investing $140,000 more. Those 20 extra years of compound growth are worth more than doubling your contributions. Time beats money every single time.
If you're young and reading this: maxing out your IRA is the single best financial decision you can make. Period.
Essential IRA Planning Guides
Master your Individual Retirement Accounts with our comprehensive IRA guides for 2026
Traditional IRA vs Roth IRA: Key Differences Explained
Detailed comparison of tax treatments, eligibility rules, and which IRA type works best for different financial situations and career stages.
IRA Contribution Limits for 2026 (Income Rules Included)
Complete breakdown of IRA contribution limits, catch-up contributions, and income phase-outs for Traditional and Roth IRAs in 2026.
How to Open an IRA Account in the USA (Step-by-Step)
Complete walkthrough for opening your first IRA account, choosing a provider, funding your account, and selecting your initial investments.
Best IRA Investments for Long-Term Retirement Growth
Expert recommendations for IRA investment portfolios that maximize growth while managing risk for retirement savings.
Can You Have Both a 401(k) and an IRA?
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Important Disclaimer
This content is for educational purposes only and should not be considered financial or tax advice. IRA rules are complex and change frequently. Contribution limits, income phase-outs, and tax treatment vary based on individual circumstances. Early withdrawals may incur penalties and taxes. Consult with a qualified tax professional or financial advisor about your specific situation. We're not registered investment advisors or tax professionals—just here to help you understand your options.