Everything you need to know about Individual Retirement Accounts in 2026 — from contribution limits and tax advantages to choosing the right IRA type for your situation.
An IRA ranks among the smartest retirement moves available because it lets your investments grow completely free of capital gains taxes — and that tax shield compounds powerfully over time. Here's a number worth remembering: if you contribute $7,500 a year starting at age 30 and earn an average 7% annual return, you'd have over $1 million by age 65, and you'd never pay capital gains taxes on any of that growth.
Yet millions of people still don't have an IRA, often because the options feel overwhelming. Traditional or Roth? SEP or SIMPLE? What about contribution limits, income phase-outs, and withdrawal penalties? This guide cuts through the complexity. We'll walk you through every IRA type, the 2026 contribution limits, the tax advantages you can claim, and exactly how to open an account. If you're ready to compare the best IRA accounts, we've got that covered too.
The retirement savings gap in America is real, and it's growing. According to the Federal Reserve's Survey of Consumer Finances, nearly half of working-age Americans have no retirement savings at all. Social Security replaces only about 40% of pre-retirement income for the average earner — far less than most people need to maintain their lifestyle.
That's where tax-advantaged accounts like IRAs make a measurable difference — and understanding the best investments to hold inside them matters just as much. Every dollar you invest inside an IRA grows without being reduced by capital gains taxes. Over 30 years, that tax shield alone can add tens of thousands of dollars to your retirement balance compared to investing in a standard taxable brokerage account.
Think of it this way: in a taxable account, the IRS takes a cut every time you sell an investment at a profit. An IRA keeps that cut in your account, compounding year after year. The earlier you start, the more dramatic the effect — and with 2026 contribution limits allowing up to $7,500 per year ($8,600 if you're 50 or older), there's meaningful room to build wealth even on a moderate income.
An IRA is a tax-advantaged investment account. There are different types with slightly different rules, which we'll cover in detail below. But all IRAs share one thing in common: you won't pay capital gains taxes on any profits you earn from investments inside your account.
That means your money can grow tax-free inside your IRA over years or even decades. Think of an IRA like a protective wrapper around your investments — the investments themselves (stocks, bonds, funds) are the same as what you'd buy in any brokerage account, but the wrapper shields them from the capital gains taxes that normally eat into your returns.
You can open an IRA even if you have another retirement account, like a 401(k), or even if you don't have any other investing account. However, there are limits to how much you can contribute each year — $7,500 for 2026, or $8,600 if you're 50 or older — and rules around when you can withdraw your money without tax penalties.
This guide draws from primary IRS publications on IRA contribution limits and retirement plan rules, along with educational resources from major financial institutions including Fidelity, Schwab, and Vanguard. We referenced the SECURE Act 2.0 provisions enacted in December 2022 for updated catch-up contribution rules taking effect in 2025 and beyond.
All dollar figures, income thresholds, and contribution limits in this article reflect 2026 tax year numbers as published by the IRS. BestMoney's editorial team independently verified every figure against IRS.gov and cross-referenced with institutional sources. This is secondary-source research — we're synthesizing and explaining publicly available regulatory information, not conducting original surveys for this particular guide.
The most important things to know about IRAs are the tax treatment differences between types, the contribution limits that apply to each, and the eligibility rules that determine which accounts you can open — because choosing the right type upfront can save you tens of thousands of dollars over your investing lifetime.
One of the great things about an IRA is that it offers extremely flexible investment options.
Many investors open an IRA through a stock broker. In that case, you can invest in any assets your broker offers. You can often invest in traditional assets like stocks and bonds, new assets like cryptocurrency, and inflation-resistant assets like gold.
It's also possible to create a self-directed IRA Limited Liability Corporation (LLC) to invest in less conventional assets. With an IRA LLC, you can invest in real estate, buy a company, or purchase fine artworks through your IRA.
The main advantages of an IRA are tax-free investment growth, flexible investment options, and the ability to supplement your 401(k) contributions — giving you more control over your retirement savings. Here are the top five benefits:
The reason many retirement investors choose to open an IRA is to reduce their tax bill. Any capital gains earned from buying and selling assets in an IRA are tax-free.
That can translate to significant savings over the course of your investing career. Depending on your income and investment style, capital gains taxes normally eat up 10-37% of your investment profits.
It's important to note that IRAs aren't completely tax-free. You'll still pay taxes on the money you contribute to an IRA before you start investing it or on withdrawals from your IRA in retirement, depending on the type of IRA you hold.
Compound growth is one of the main reasons why investing is such a powerful way to build wealth for retirement. You can return your profits from a successful investment into the market, so the amount you have invested increases over time and you can earn greater profits in the future as a result.
Your potential for compound growth is supercharged in an IRA thanks to its tax advantages. Capital gains that would normally be set aside for taxes can instead be put toward new investments. With every profitable investment, you're able to put an additional 10-37% of your earnings to work for you compared to a taxable investing account.
A problem many high-income investors face is that they reach the maximum contribution limit for their 401(k) each year. In 2026, the 401(k) contribution limit is $24,500, or $31,000 if you're at least 50 years old.
However, you can contribute to both a 401(k) and an IRA in the same year. If you have both types of accounts, you effectively have a higher limit for retirement account contributions.
The IRA contribution limit for 2026 is $7,500, or $8,600 if you're at least 50 years old. So, an investor under 50 with both a 401(k) and an IRA could contribute up to $32,000 to tax-advantaged investing accounts in a single year.
As we covered above, IRAs enable you to invest in everything from stocks and bonds to cryptocurrencies and real estate. It's worth contrasting this flexibility with other types of retirement accounts, such as 401(k)s.
With a 401(k), you're limited to investing in a small selection of assets that your employer and broker have agreed to. Usually, this is a small list of ETFs and mutual funds. Most 401(k) plans don't allow you to invest in individual stocks.
So, even if you aren't contributing the maximum to your 401(k), it can be a good idea to invest in an IRA as well since it enables you to diversify your retirement portfolio. Additionally, if your employer matches contributions to your 401(k), it's usually best to maximize your contributions to that account first.
Many brokerages now offer fee-free IRAs. You won't pay any fees to open or maintain an account. You also won't pay commissions when buying most stocks, bonds, and ETFs.
All the money you save on fees can be put towards investments instead. Like saving money on taxes, this contributes to enhancing compound growth in your retirement account.
The main drawbacks of an IRA are strict annual contribution limits ($7,500 in 2026), early withdrawal penalties before age 59½, and — for Roth IRAs — income eligibility caps that can prevent higher earners from contributing directly. Here's what to watch for:
There are strict limits on how much money you can contribute to an IRA each year. In 2026, the limit is $7,500. If you're over 50, you can contribute an additional $1,100 per year as a catch-up contribution, for a total limit of $8,600.
Starting in 2025, the SECURE Act 2.0 introduced a "super catch-up" provision: if you're between ages 60 and 63, you can contribute up to $11,250 to an IRA, giving you an even larger window to boost your retirement savings in the years just before you reach withdrawal age.
You can have multiple IRAs, but the contribution limit is cumulative. That is, you can contribute at most $7,500 across all of your accounts, not $7,500 per account. On the plus side, how much you contribute to a 401(k) or another retirement plan does not impact your ability to contribute to an IRA.
Roth IRAs also have income eligibility limits. In 2026, single filers with modified adjusted gross income (MAGI) between $153,000 and $168,000 can make only a reduced contribution. If your MAGI exceeds $168,000, you can't contribute directly to a Roth IRA — though a backdoor Roth IRA strategy (contributing to a Traditional IRA and then converting) may still be an option.
IRAs also have strict rules around withdrawing funds. The rules vary slightly depending on the type of IRA you open, but there are some common themes.
First, you'll face tax penalties in most circumstances if you withdraw funds from an IRA before age 59½. The main exception is that you're allowed to withdraw up to $10,000 for a first-time home purchase. There are also exceptions for using IRA funds to pay for certain education or medical expenses.
Once you turn 59½, you can start withdrawing funds from your IRA at any rate you choose. Depending on the type of IRA you have, you may have to pay income taxes on your withdrawals.
Once you turn 73, you're required for most IRAs to take a minimum distribution each year. Under the SECURE Act 2.0, this age will rise to 75 starting in 2033. There are no mandatory withdrawals for Roth IRAs, which we'll cover below.
The right IRA type depends primarily on your current income, your expected income in retirement, and whether you're self-employed — those three factors narrow the choice for most people.
Keep in mind that you can open several different IRAs. However, the $7,500 annual contribution limit ($8,600 if you're 50 or older) applies to your cumulative contributions to all of your Traditional and Roth IRAs.
IRA Type | Best For | 2026 Contribution Limit | Tax Treatment |
Traditional IRA | High earners expecting lower income in retirement | $7,500 ($8,600 if 50+) | Tax-deductible contributions; taxed on withdrawal |
Roth IRA | Lower earners expecting higher future income | $7,500 ($8,600 if 50+) | After-tax contributions; tax-free withdrawals |
SEP IRA | Self-employed individuals, business owners | 25% of net income or $70,000 | Tax-deductible contributions; taxed on withdrawal |
SIMPLE IRA | Small businesses with up to 100 employees | $16,500 ($20,100 if 50+) | Tax-deductible contributions; taxed on withdrawal |
Self-Directed IRA | Investors wanting alternative assets (real estate, art) | Same as underlying IRA type | Same as underlying IRA type |
Spousal IRA | Married couples with one non-working spouse | $7,500 ($8,600 if 50+) | Same as Traditional or Roth |
With a Traditional IRA, you contribute pre-tax dollars to your account. You can deduct some or all of the money you contribute from your taxable income.
However, you'll have to pay income taxes on any withdrawals you make from your IRA after you turn 59½. So, a Traditional IRA is typically best if you're a high earner who expects to have significantly less income in retirement.
A Roth IRA can be seen as the opposite of a Traditional IRA in that you contribute after-tax dollars to your account. You can't deduct any contributions to a Roth IRA from your taxable income. But you pay no taxes on withdrawals from a Roth IRA in retirement.
One key advantage of a Roth IRA is that there is no penalty for withdrawing your contributions (not earnings) from your account before you turn 59½. However, you will have to pay taxes and a 10% penalty on any earnings you withdraw early, so it's generally best to leave the money invested until retirement.
In 2026, you must have a modified adjusted gross income below $153,000 (single filers) or $228,000 (married filing jointly) to make the full contribution. If your income falls between $153,000 and $168,000 (single) or $228,000 and $238,000 (married), your allowed contribution is reduced. Above those upper limits, you can't contribute directly — but you may be able to use a "backdoor Roth" strategy by contributing to a Traditional IRA first and then converting.
In general, a Roth IRA is best if you have a relatively low income right now and fall into a low tax bracket. It can also be a good choice if you think income taxes will increase significantly by the time you retire.
A Simplified Employee Pension (SEP) IRA is designed for self-employed individuals and business owners with any number of employees.
You make contributions with pre-tax dollars, similar to a Traditional IRA. However, your annual contribution limit is increased to 25% of your net income or $70,000, whichever is less.
Note that if you have employees, you're required to contribute to a retirement plan for each employee. The required contribution is proportional to the amount you contribute to your own SEP IRA. Keep this in mind since a SEP IRA could become a significant benefit to offer employees, but also a major cost for your business.
A SIMPLE (Savings Incentive Match Plan for Employees) IRA is available to small business owners who have up to 100 employees. You and your employees each receive accounts. You can each contribute up to $16,500 per year in 2026, or $20,100 per year if you're at least 50 years old.
As the business owner, you must also make contributions to employees' accounts each year. The required contribution is a match of 3% of an employee's contributions or 2% of an employee's annual salary (you choose).
A SIMPLE IRA can be a good option if you want to offer a retirement plan like a 401(k) for employees but don't want to deal with the complexity of managing a 401(k).
A self-directed IRA, also known as an IRA LLC, allows you to invest in a wider range of assets than other types of IRAs. They're often used if you want to invest in real estate, a business, art, or precious metals within an IRA.
Any type of IRA can be set up as a self-directed IRA with the same rules and contribution limits. You'll typically need to hire an attorney to structure and register your IRA LLC.
Self-directed IRA LLCs are typically used by high-net-worth individuals and business owners who can contribute the maximum $70,000 per year to a SEP IRA.
A spousal IRA is a Traditional or Roth IRA designed for married couples in which one individual works and their spouse does not (or earns very little income). The spousal IRA is not a joint account, but rather an independent IRA set up in the name of the non-working spouse.
The income-earning individual can contribute to their spouse's IRA just like they would contribute to their own IRA. So this type of IRA allows couples in which only one individual earns income to double their potential contributions. Importantly, couples with a spousal IRA must file income taxes jointly.
If you inherit a tax-advantaged investment account like an IRA or a 401(k), you typically have to transfer the funds to a new account. One common type of account to use for this purpose is an inherited IRA, also known as a beneficiary IRA.
The rules around inherited IRAs are complex and depend on your relationship to the deceased. A surviving spouse can roll over funds into another retirement account or convert the inherited IRA to a Roth or Traditional IRA. Most other heirs are required to take annual distributions such that the inherited IRA is emptied within 10 years.
It's a good idea to speak with a tax attorney to understand your options and obligations for an inherited IRA.
You can roll over funds from a 401(k) or another retirement plan to an IRA with no penalties. This is common when you leave a job so that you can manage all of your money in one place. Rolling over from a 401(k) to an IRA also gives you access to more investment options.
There's no limit to how much money you can roll over from a 401(k) to an IRA.
You can open an IRA through most stock brokers. Many offer an online sign-up process that only takes a few minutes. Plus, most major brokers don't charge any account opening or management fees for an IRA.
You can also open an IRA through many robo-advisor firms. These are brokers that offer pre-made investment portfolios designed to align with your financial goals and risk tolerance. Robo-advisors typically charge a monthly management fee that's based on the amount of money you have in your IRA.
When choosing a broker — and our guide to stock brokers can help here — look for three things: low or no account fees, a wide range of investment options (stocks, ETFs, bonds, and mutual funds at a minimum), and no account minimum — or at least one you can comfortably meet. Many brokers, such as Fidelity and Charles Schwab, check all three boxes for IRA accounts.
To open an account at a broker or robo-advisor, visit the service's website and find the Open Account button. This is usually displayed prominently on the homepage. Then select the type of IRA you'd like to open.
You'll typically need to provide your name, email, phone number, address, birthday, and social security number. You must also provide your employment status and annual income and confirm that you are not a professional investor.
Some brokers will accept your application and open your account immediately, while others take several days to review your application. Once your IRA is open, you can deposit funds from your bank account. If you plan to roll over funds from an existing IRA or 401(k), you'll typically need to speak with an account manager at your broker. You can also compare brokers that offer IRA accounts to find the best fit for your situation.
If you're younger and expect to earn more later, a Roth IRA is likely your best move; if you're a high earner today, a Traditional IRA typically serves you better; and if you're self-employed, a SEP or SIMPLE IRA unlocks much higher contribution limits. Here's how to match your situation to the right account:
If you're in your 20s or 30s and just getting started: A Roth IRA is likely your strongest move. You're probably in a lower tax bracket now than you will be later, so paying taxes on contributions today and withdrawing tax-free in retirement works in your favor. Even small contributions now have decades to compound. If you can, set up automatic monthly contributions — even $200 a month adds up to $2,400 a year toward your $7,500 limit.
If you're mid-career and earning a higher income: Consider a Traditional IRA for the upfront tax deduction, especially if you're already maxing out your 401(k). The combined contribution potential — $24,500 to your 401(k) plus $7,500 to an IRA — gives you $32,000 in annual tax-advantaged investment space. If your income exceeds the Roth IRA phase-out limits, look into a backdoor Roth conversion.
If you're self-employed or run a small business: A SEP IRA lets you contribute up to $70,000 per year (or 25% of net income, whichever is less), making it one of the most powerful retirement savings tools available. If you have employees, weigh the cost of required matching contributions against a SIMPLE IRA, which has lower limits but simpler administration.
If you're 50 or older and catching up: Take full advantage of catch-up contributions. Your IRA limit jumps to $8,600, and if you're between 60 and 63, the SECURE Act 2.0 super catch-up raises that to $11,250. Pair this with 401(k) catch-up contributions to make the most of your remaining working years.
Now that you understand how IRAs work and which type fits your situation, here are three steps to take right now:
Decide which IRA type fits your situation. Use the comparison table and reader profiles above to narrow it down. If you're unsure between Traditional and Roth, the key question is whether you expect to be in a higher or lower tax bracket in retirement.
Compare brokers that offer IRA accounts. Look for low fees, strong investment options, and an easy account setup process. BestMoney's broker comparison page lets you evaluate your options side by side.
Open your account and set up automatic contributions. Most brokers let you link a bank account and schedule recurring transfers. Even if you can't hit the $7,500 limit right away, automating smaller contributions builds the habit and lets compounding work in your favor.
If you already have a 401(k) from a previous employer, consider rolling it over into an IRA to consolidate your retirement savings and access a wider range of investment options.
The core difference is when you pay taxes. With a Traditional IRA, you deduct contributions from your taxable income now and pay income taxes when you withdraw in retirement. With a Roth IRA, you contribute after-tax dollars and withdraw tax-free in retirement. A Traditional IRA is generally better if you're in a high tax bracket now and expect lower income later. A Roth IRA is typically better if you're in a lower bracket now and expect your income (or tax rates) to rise.
The 2026 IRA contribution limit is $7,500 if you're under 50 and $8,600 if you're 50 or older (thanks to the $1,100 catch-up contribution). If you're between ages 60 and 63, the SECURE Act 2.0 super catch-up allows up to $11,250. These limits apply across all your Traditional and Roth IRAs combined — not per account.
Yes. The contribution limits for 401(k)s and IRAs are completely separate. In 2026, you could contribute up to $24,500 to a 401(k) and $7,500 to an IRA, for a combined $32,000 in tax-advantaged retirement savings (more with catch-up contributions if you're eligible). Having both gives you more flexibility and a wider range of investment options.
You can withdraw from most IRAs without penalty after age 59½. Before that, you'll typically face a 10% early withdrawal penalty plus income taxes. Exceptions include up to $10,000 for a first-time home purchase, qualified education expenses, and certain medical costs. With a Roth IRA, you can always withdraw your contributions (not earnings) penalty-free at any time.
For 2026, single filers with modified adjusted gross income (MAGI) below $153,000 can make the full Roth IRA contribution. Between $153,000 and $168,000, the contribution is reduced. Above $168,000, you can't contribute directly. For married couples filing jointly, the phase-out range is $228,000 to $238,000. High earners above these limits can consider a backdoor Roth IRA strategy — contributing to a Traditional IRA and converting to a Roth.
SECURE Act 2.0 — Consolidated Appropriations Act, 2023, Division T (super catch-up contributions effective 2025)
Federal Reserve Survey of Consumer Finances — retirement savings statistics
Major brokerage educational resources on IRA types, contribution limits, and income phase-outs
BestMoney editorial review and independent fact-checking
Michael Graw is a personal finance expert at BestMoney.com, specializing in online banking and insurance. His work has appeared in print magazines and on high-impact websites. With a passion for clarity and practicality, Michael helps readers navigate today’s financial landscape.
