An IRA is a retirement account you open and control yourself, separate from any job. If you don't have a workplace plan, or you've maxed one out, an IRA is how you keep saving with a tax advantage. The choice among the four types comes down to your tax bracket now versus in retirement, and whether you run a business or have employees.

An IRA, short for individual retirement account, helps you invest for retirement and, in most cases, cut your tax bill along the way. Anyone with earned income can open one at a broker, an online platform, or a robo-advisor, and hold stocks, bonds, ETFs, and mutual funds inside it. Each type has its own rules on contributions, deductions, withdrawals, and taxes.

Types of IRAs

Traditional IRA

A traditional IRA is tax-deferred. Contribute $3,000 and your taxable income drops by $3,000 (if the contribution is deductible), the money grows without annual tax on dividends or gains, and you pay ordinary income tax on withdrawals in retirement.

Contributions must come from earned compensation: wages, salary, tips, professional fees, or bonuses. You open a traditional IRA through a broker, robo-advisor, or financial advisor.

Withdrawals. You can withdraw any time, but a distribution before age 59 1/2 is taxed as ordinary income plus a 10% penalty. Common exceptions to the penalty:

• Death or permanent disability. If you become permanently disabled you can withdraw without the penalty. If you die, your beneficiary can withdraw without the penalty.
• First home. Up to $10,000 (lifetime) toward a first home.
• Higher education. Qualified tuition, fees, books, and supplies.
• 60-day rollover. Moving funds to another IRA or plan is penalty-free if redeposited within 60 days.

Contribution limit. For 2026, the traditional IRA limit is $7,500, plus a $1,100 catch-up if you're 50 or older, for $8,600.

Deduction limit. If you (or your spouse) are covered by a workplace retirement plan, your deduction phases out over an income range. For 2026, a covered single filer gets the full deduction below $81,000 of modified adjusted gross income (MAGI), a partial deduction from $81,000 to $91,000, and none above that. For a covered married couple filing jointly, the range is $129,000 to $149,000. With no workplace plan on either side, the deduction is unlimited.

Roth IRA

A Roth IRA takes after-tax dollars. No deduction now, but qualified withdrawals in retirement are tax-free, which helps if you expect to be in a higher bracket later.

Withdrawals. You can take out your contributions any time, tax- and penalty-free. To withdraw earnings tax-free, the distribution must be qualified, meaning at least one of these plus the five-year rule is met:

• The account has been open at least five years
• You are at least 59 1/2
• Up to $10,000 (lifetime) is used toward a first home for you or a family member
• You have become disabled
• The distribution is to a beneficiary after your death

Non-qualified earnings withdrawals are taxed and hit with a 10% penalty. A Roth IRA is the only account with no required minimum distributions during the owner's lifetime; you can leave it untouched for life. Most non-spouse beneficiaries who inherit one do have to draw it down.

Contribution limit. Same as a traditional IRA: $7,500 for 2026, or $8,600 if you're 50 or older, across both account types combined.

Income limit. For 2026, you can make a full Roth IRA contribution with MAGI under $153,000 (single) or $242,000 (married filing jointly). Contributions phase out up to $168,000 and $252,000, above which you can't contribute directly (a backdoor Roth remains available).

SEP IRA and SIMPLE IRA

Two more IRA types are built for business owners, with lower cost and paperwork than a 401(k).

SIMPLE IRA

SIMPLE stands for Savings Incentive Match Plan for Employees. It works like a traditional IRA but with higher limits, and is typically used by businesses with 100 or fewer employees. Employees make pre-tax contributions and the employer contributes too. An eligible employee can decline to contribute but cannot opt the account out entirely; it stays open to receive employer contributions.

Contribution limit. For 2026, the SIMPLE IRA limit is $17,000, plus a $4,000 catch-up at 50 or older (or $5,250 for ages 60 to 63), for up to $21,000. Businesses with 25 or fewer employees can use a higher limit of $18,100.

Employer contributions. The employer must either match employee contributions dollar-for-dollar up to 3% of pay (reducible to as low as 1% in no more than two of any five years), or make a 2% nonelective contribution for every eligible employee whether or not they contribute.

Withdrawals. Withdrawals before 59 1/2 without an exception face the 10% penalty plus income tax. Within the first two years of participation, the early-withdrawal penalty is 25% instead of 10%.

SEP IRA

SEP stands for Simplified Employee Pension. It's popular with the self-employed and works for businesses of any structure: sole proprietorships, partnerships, LLCs, and S or C corporations. To be an eligible employee, a person must be at least 21, have worked for the business in three of the past five years, and have earned at least $800 from it in 2026.

Contribution limit. For 2026, a business owner can contribute up to the lesser of $72,000 or 25% of compensation (about 20% of net self-employment income for a sole proprietor), well above the traditional IRA limit. There are no catch-up contributions. The contribution percentage must be the same for the owner and every eligible employee, so a SEP gets expensive as staff grows. Contributions are tax-deductible. A Roth SEP is now allowed under SECURE 2.0.

Withdrawals. Same as a traditional IRA: penalty-free after 59 1/2, and a 10% penalty before then unless an exception (disability, first home, qualified education, an IRS levy) applies.

For a fuller comparison of business plans, see small business retirement plans.

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Benefits of an IRA

Tax advantages

A traditional IRA lets you deduct contributions now (within the income limits) and defer tax until you withdraw, which can lower your taxable income during your working years. A Roth IRA does the opposite, taxing contributions now for tax-free withdrawals later. Which is better depends on whether you expect a higher or lower tax rate in retirement. A Certified Financial Planner can help you decide.

Easy to open

Most IRAs open online in minutes with little paperwork. You can manage the investments yourself or work with a planner.

More control than a 401(k)

An IRA isn't tied to an employer. Your employer can't change the plan or fund menu, you don't have to track old accounts across former jobs, and IRAs usually offer a wider range of investments than a workplace plan. See 401(k) vs. Roth IRA for how the two compare.

Retirement account comparison

How to open an IRA

1. Choose a provider. Brokerages like Charles Schwab, Vanguard, and Fidelity let you pick and manage your own investments. Robo-advisors like Betterment, Wealthfront, and Schwab Intelligent Portfolios invest for you by algorithm.

2. Choose the IRA type that fits your tax situation and, if applicable, your business.

3. Open the account. You'll provide your name, address, and phone; Social Security number; a government ID; date of birth; beneficiary information; and your employment and investment preferences.

4. Fund it. Link a bank account for a one-time transfer or recurring contributions, keeping the annual limit in mind.

Required minimum distributions

Required minimum distributions (RMDs) are the minimum you must withdraw each year once you reach RMD age: 73 if you were born between 1951 and 1959, and 75 if you were born in 1960 or later. Your first RMD is due by April 1 of the year after you reach that age, and every one after by December 31.

RMDs apply to traditional, SEP, and SIMPLE IRAs. Withdrawals from those are taxed as income, and missing an RMD triggers a 25% penalty (reduced to 10% if corrected within two years). A Roth IRA has no lifetime RMDs, though most non-spouse beneficiaries who inherit one must draw it down.

Frequently asked questions

How do I start an IRA, and which should I choose?

Any major brokerage can open an IRA once you provide identification and funding. Decide first between a self-directed account and a robo-advisor, then choose the type: a Roth IRA if you expect a similar or higher tax rate in retirement, a traditional IRA if you expect a lower one and want the deduction now. A Certified Financial Planner can match the choice to your goals and taxes.

How do I withdraw from an IRA?

You can withdraw any time, but a distribution before 59 1/2 usually costs a 10% penalty plus ordinary income tax on the taxable portion. Exceptions include qualified higher-education expenses, a first-time home purchase (up to $10,000 lifetime), and permanent disability. Roth IRA contributions can always come out tax- and penalty-free.

Can I have multiple IRAs?

Yes, with no limit on the number of accounts, but your total contributions across all of them cannot exceed the annual limit. For 2026 that limit is $7,500 (under 50), so with two IRAs you could put $3,750 in each.

What happens to my IRA if I change jobs?

Nothing, for an IRA you opened yourself. It isn't tied to an employer; you are the account holder. (A SEP or SIMPLE IRA set up through an employer stops receiving new employer contributions when you leave, but the balance stays yours.)

How are IRAs taxed?

It depends on the type. A traditional IRA is taxed when you take distributions, at your income-tax rate that year. A Roth IRA is taxed on contributions instead, so qualified withdrawals in retirement are tax-free.

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