IRA (Individual Retirement Account)
A retirement account you open independently of any employer, in traditional or Roth form.
The two forms differ in when tax is paid. A traditional IRA may deduct the contribution now and taxes the withdrawal later. A Roth takes after-tax money and then charges nothing on growth or qualified withdrawals.
The 2025 limit is $7,000, or $8,000 from age 50. That ceiling applies across both types combined rather than to each separately. The tradeoff against a workplace plan is scale for choice: far lower limits, but any custodian and any investment.
Traditional IRA deductibility phases out at moderate incomes when a workplace plan is available, and direct Roth contributions phase out at higher incomes. Both thresholds are indexed annually, so the current year's figures are worth checking against the IRS tables rather than remembered.
Worked through
Traditional IRA
- Contribution may be deductible
- Reduces taxable income now
- Grows tax-deferred
- Withdrawals taxed as income
- Subject to RMDs from 73
Favors a lower rate in retirement
Roth IRA
- Contribution is after-tax
- No deduction in the current year
- Growth is untaxed
- Qualified withdrawals untaxed
- No RMDs for the original owner
Favors a higher rate in retirement
Related in Retirement Accounts
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