Financial Basics · Retirement Accounts

IRA

Definition

An Individual Retirement Account (IRA) is a self-directed retirement account with tax advantages. Traditional IRAs offer pre-tax contributions (with deductibility phase-outs); Roth IRAs offer tax-free growth with income limits.

Why it matters in retirement

IRAs let you take control of your retirement money — much wider investment selection than most 401(k)s, no plan fees, full flexibility. For rollovers from former employers, an IRA is usually the right destination.

Key Numbers — 2026

IRA contribution limit (2026)
$7,500
Age 50+ catch-up
$1,000
Traditional deduction phase-out (MFJ)
$135K–$155K
Roth phase-out (MFJ)
$246K–$256K

Pros

  • Full investment flexibility
  • Lower fees than most 401(k)s
  • Traditional: current tax break
  • Roth: tax-free growth

Cons

  • Lower contribution limits than 401(k)
  • State creditor protection varies
  • RMDs on traditional at 73
  • Roth income limits

Common mistakes

  • Missing the contribution deadline (April 15)
  • Not knowing about backdoor Roth conversions
  • Skipping spousal IRA contributions when one spouse doesn't work
  • Leaving old 401(k)s scattered instead of consolidating

Related

Roth IRA

A Roth IRA is an after-tax retirement account where contributions grow tax-free and qualified withdrawals are tax-free in retirement. Contri…

401(k)

A 401(k) is an employer-sponsored retirement plan that lets employees defer pre-tax (or Roth) salary into an investment account. Most employ…

Roth Conversion

A Roth conversion moves money from a traditional IRA or 401(k) to a Roth IRA. You pay ordinary income tax on the converted amount in the yea…

Required Minimum Distributions (RMDs)

RMDs are mandatory annual withdrawals from traditional retirement accounts (IRA, 401(k), 403(b)) that begin at age 73 (rising to 75 in 2033)…

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