What is an IRA?
What you'll learn
Understand what an IRA is - the retirement account you open yourself - and the one distinction that matters, traditional vs Roth.
An IRA is a retirement account you open yourself - no employer required. You pick the broker, you pick the investments, and you fund it from your own bank account. It is the retirement account for money your workplace plan does not touch, or for people without a workplace plan at all.
The only distinction that really matters is when the tax is paid:
- Traditional IRA - tax break now. Contributions can be deducted from this year's income, and you pay income tax when you withdraw in retirement.
- Roth IRA - tax break later. You contribute money that has already been taxed, and qualified withdrawals in retirement are completely tax-free.
| Feature | Traditional IRA | Roth IRA |
|---|---|---|
| Tax on the way in | Often deductible | None - already-taxed money |
| Tax on growth | None while invested | None while invested |
| Tax on the way out | Income tax | Tax-free (qualified withdrawals) |
| Tends to suit | Higher tax rate now than in retirement | Lower tax rate now than in retirement |
One limit, shared
The IRS caps what you can contribute across both IRA types combined - $7,500 for 2026, with catch-up room from age 50. The limit changes over time, so check the current figure. Roth contributions also phase out at higher incomes.
For the full rules and the tax maths behind the choice, see our Roth IRA vs traditional IRA guide.
Key takeaways
- An IRA is a retirement account you open and control yourself, independent of any employer.
- Traditional means a tax break today and taxed withdrawals; Roth means taxed today and tax-free withdrawals.
- The winner depends on whether your tax rate is higher now or in retirement.
- One annual limit is shared across both types, and it changes - check the current figure.
Illustrative scoring only, not a forecast or a recommendation. The bars rank each IRA type on two qualities to show the trade-off; they are not measurements. The right choice depends on your own tax position.
Frequently asked questions
What does IRA stand for?
Individual retirement arrangement, usually read as individual retirement account. The key word is individual - you open it yourself at a broker of your choosing, and it is not tied to any employer.
Can I have an IRA and a 401(k) at the same time?
Yes. The contribution limits are separate, so many people use both. Having a workplace plan can reduce the traditional IRA tax deduction at higher incomes, but it does not block you from contributing.
How much can I put into an IRA each year?
The IRS sets an annual limit shared across your traditional and Roth IRAs - $7,500 for 2026, with extra catch-up room from age 50. The figure changes over time, so check the current limit before contributing.
Which is better, traditional or Roth?
Neither is simply better. The traditional wins if your tax rate is higher now than it will be in retirement; the Roth wins if your rate is lower now. At equal rates the outcomes are identical.
General information, not financial advice. The value of investments can fall as well as rise, and figures and rules can change; check the current position before acting.