IRA (Individual Retirement Account)
An IRA is a tax-advantaged personal retirement savings account that individuals can open independently, offering either tax-deductible contributions (Traditional) or tax-free withdrawals (Roth).
Exam Tip
IRA = Individual (not employer). Know Traditional vs. Roth tax treatment.
What is an IRA?
An Individual Retirement Account (IRA) is a personal savings plan that offers tax advantages for setting aside money for retirement. Unlike 401(k)s, IRAs are not tied to an employer.
Types of IRAs
| Type | Contributions | Withdrawals | Best For |
|---|---|---|---|
| Traditional IRA | Tax-deductible | Taxed as income | Higher earners now, lower in retirement |
| Roth IRA | After-tax | Tax-free | Lower earners now, higher in retirement |
| SEP IRA | Employer contributes | Taxed as income | Self-employed, small business |
| SIMPLE IRA | Pre-tax | Taxed as income | Small businesses |
Contribution Limits (2025)
- Annual Limit: $7,000
- Catch-up (50+): Additional $1,000
- Total if 50+: $8,000
Traditional IRA Deductibility
If you have an employer retirement plan, your deduction may be limited based on income. Without an employer plan, contributions are fully deductible regardless of income.
Roth IRA Income Limits (2025)
| Filing Status | Full Contribution | Phase-out |
|---|---|---|
| Single | Under $150,000 | $150,000-$165,000 |
| Married Filing Jointly | Under $236,000 | $236,000-$246,000 |
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Related Terms
401(k)
SecuritiesA 401(k) is an employer-sponsored retirement savings plan that allows employees to contribute pre-tax dollars, with potential employer matching, and tax-deferred growth until withdrawal.
Roth IRA
SecuritiesA Roth IRA is a retirement account funded with after-tax dollars that grows tax-free and allows tax-free withdrawals in retirement, with no required minimum distributions.