Individual Retirement Accounts (IRAs): The Complete Guide

What is an IRA?

An individual retirement account is a tax-advantaged shell you open on your own, entirely separate from whatever your employer offers. Banks, brokerages and insurance companies all act as custodians for them. The account itself holds no investments by default. You decide what goes inside it, from index funds to CDs to a fixed annuity, and the IRA wrapper determines how that growth is taxed rather than what it is invested in.

The appeal is straightforward: money that would otherwise be taxed along the way gets a chance to compound with less friction, either because taxes are deferred to a later, possibly lower-bracket year or because they are paid up front and never owed again.

What an IRA actually buys you

A shot at paying less tax over your working life. Depending on which type you choose, you either deduct contributions now and pay tax on withdrawals later, or you pay tax now and owe nothing on qualified withdrawals in retirement. Either path beats holding the same investments in a fully taxable brokerage account, where dividends and gains get taxed every year regardless of whether you touch the money.

Freedom to pick your own custodian. An employer's 401(k) locks you into whatever menu of funds the plan administrator negotiated. An IRA is yours to open wherever you want, and you can move it to a new custodian later if you find better pricing or investment options.

One home for old employer plans. Leave a job, and a 401(k) or 403(b) balance can roll directly into an IRA without triggering a tax bill, consolidating what would otherwise be scattered accounts from a decades-long career into a single statement you actually look at.

Types of IRAs

Traditional IRA. Contributions may be deductible in the year you make them, lowering that year's taxable income. The balance grows without an annual tax bill, and you owe ordinary income tax on every dollar you eventually withdraw, deductible contributions and all their growth included.

Roth IRA. You fund a Roth with money you have already paid tax on, so there is no upfront deduction. In exchange, qualified withdrawals of both contributions and growth come out completely tax-free once you are past 59 and a half and have held the account at least five years.

SEP IRA. Built for the self-employed and small business owners, a SEP lets you contribute a percentage of net self-employment income well above what a traditional or Roth IRA allows on its own. Contributions are employer-side and tax-deductible, following the same tax-deferred growth as a traditional IRA.

SIMPLE IRA. Aimed at small employers who want to offer a retirement benefit without the cost and paperwork of a full 401(k). Both the employee and the employer contribute, at limits below a 401(k) but above a standard IRA, making it a middle-ground option for a business with a handful of workers.

Contribution limits and eligibility

The IRS adjusts IRA contribution limits most years to keep pace with inflation. For 2026, the combined limit across all your traditional and Roth IRAs is $7,500, with an extra $1,100 allowed if you are 50 or older by year end.

Whether a traditional IRA contribution is deductible, and whether you can contribute to a Roth IRA at all, depends on your income, your filing status and whether you or a spouse are covered by a workplace retirement plan. Someone with no workplace plan can typically deduct the full traditional IRA contribution regardless of income; someone who has one may see the deduction phase out at higher income levels. Check the current thresholds before assuming either scenario applies to you.

IRA withdrawal rules

Early withdrawals. Pull money out before age 59 and a half, and you generally owe ordinary income tax on the taxable portion plus a 10% penalty. The IRS carves out exceptions for specific situations, including certain higher education expenses and a limited amount for a first home purchase, so check whether your situation qualifies before assuming the penalty applies.

Required minimum distributions. Traditional IRAs force withdrawals starting at age 73, a threshold SECURE 2.0 raised from 72 and is scheduled to raise again to 75 in 2033. Our RMD calculator estimates what your own required withdrawal would be based on your balance and age. Roth IRAs carry no lifetime RMD for the original owner, which is one reason some savers convert traditional balances to Roth well before retirement.

What to do with an IRA from here

If part of your goal is shielding a portion of this money from market swings, our IRA annuity guide walks through what happens when you hold a fixed or fixed index annuity inside the wrapper. If a Roth conversion is on the table, running the numbers first with our Roth conversion calculator will show whether paying the tax now makes sense for your bracket. And before opening any new account, it is worth a conversation with a licensed strategist or tax professional about how it fits the rest of your retirement picture, since the right choice depends on details specific to you.

The bottom line

An IRA is a tool, not a strategy by itself. The account type decides when you pay tax; the investments you put inside it decide how the money grows. Starting early, contributing consistently up to the annual limit, and matching the account type to your current and expected future tax bracket will do more for your eventual retirement than chasing any single investment inside it.