Individual Retirement Accounts (IRAs): Your Guide to Tax-Advantaged Savings
An Individual Retirement Account (IRA) is a powerful tax-advantaged tool for building retirement wealth. Whether you don't have access to a workplace retirement plan or want to supplement your 401(k), an IRA offers flexibility, tax benefits, and a wide range of investment options. Our IRA calculator helps you project how your contributions can grow over time and understand the differences between Traditional and Roth IRAs.
2026 IRA Contribution Limits
The IRS sets annual limits on IRA contributions. For 2026, here are the key limits you should know:
2026 IRA Contribution Limits
Traditional IRA vs. Roth IRA: Key Differences
Understanding the difference between Traditional and Roth IRAs is essential for choosing the right account for your situation:
Traditional vs. Roth IRA Comparison
Traditional IRA
• Contributions may be tax-deductible
• Earnings grow tax-deferred
• Withdrawals taxed as ordinary income
• Required Minimum Distributions at age 73
Best if: You expect lower taxes in retirement
Roth IRA
• Contributions made with after-tax dollars
• Earnings grow tax-free
• Qualified withdrawals are completely tax-free
• No RMDs during your lifetime
Best if: You expect same/higher taxes in retirement
Roth IRA Income Limits for 2026
Unlike Traditional IRAs, Roth IRAs have income eligibility limits. High earners may not be able to contribute directly to a Roth IRA:
2026 Roth IRA Income Limits
Single Filers
Full contribution: MAGI under $146,000
Phase-out: $146,000 - $161,000
Married Filing Jointly
Full contribution: MAGI under $230,000
Phase-out: $230,000 - $240,000
High earners can still access Roth benefits through the "backdoor Roth IRA" strategy— making a non-deductible Traditional IRA contribution and then converting it to a Roth. Consult a tax professional for guidance on this strategy.
💡 Pro Tip: Consider a Roth Conversion
If you have a year with lower income (between jobs, early retirement, or tax-loss harvesting), consider converting Traditional IRA assets to a Roth. You'll pay taxes on the converted amount at your lower rate, but future growth and withdrawals will be tax-free. Use our Retirement Calculator to see how IRA savings fit into your complete retirement picture.
How Much Could Your IRA Grow?
The power of consistent IRA contributions combined with compound growth can result in substantial retirement savings. Here's what maxing out your IRA could look like:
Max IRA Contributions: $7,000/Year at 7% Return
IRA Investment Options: Greater Flexibility Than 401(k)s
One major advantage of IRAs over 401(k)s is investment flexibility. While 401(k) plans typically offer a limited menu of options, IRAs allow you to invest in almost anything:
- Individual Stocks: Buy shares of any publicly traded company.
- Index Funds & ETFs: Low-cost options for broad market exposure.
- Bonds & Bond Funds: Government, municipal, and corporate bonds.
- REITs: Real estate investment trusts for property exposure.
- Target-Date Funds: Automatic allocation adjustments based on retirement year.
- CDs and Money Market: Safe options for conservative investors.
This flexibility lets you build a portfolio tailored to your risk tolerance and investment philosophy. Consider low-cost index funds for the core of your IRA—research consistently shows that minimizing fees is one of the best ways to maximize returns.
IRA Withdrawal Rules and Penalties
IRAs are designed for retirement savings, so early withdrawals typically trigger taxes and penalties. Understanding the rules helps you avoid costly mistakes:
IRA Withdrawal Rules
Traditional IRA
• Early withdrawal (before 59½): 10% penalty + income tax
• Penalty exceptions: First home ($10,000), education, medical
• RMDs begin at age 73
Roth IRA
• Contributions can be withdrawn anytime, tax and penalty-free
• Earnings: Tax-free if 59½+ and 5-year rule met
• No RMDs during your lifetime
Should You Prioritize 401(k) or IRA?
If you have access to both a 401(k) and can contribute to an IRA, consider this prioritization strategy:
- First: Contribute to 401(k) up to the employer match—this is free money.
- Second: Max out your IRA ($7,000 in 2026) for greater investment flexibility.
- Third: Return to 401(k) and contribute up to the annual limit ($23,500).
- Fourth: Consider taxable brokerage accounts for additional savings.
This approach captures employer matching, takes advantage of IRA flexibility, then maximizes additional tax-advantaged space. Use our 401(k) Calculator alongside this IRA calculator to compare both strategies.