A personal retirement savings account with tax advantages; types include Traditional and Roth.
An Individual Retirement Account (IRA) is a personal retirement savings account offering tax advantages. Two main types exist: Traditional IRAs (where contributions may be tax-deductible and withdrawals in retirement are taxed as income) and Roth IRAs (where contributions are made after-tax but qualified withdrawals are tax-free). IRAs are separate from employer plans and available to anyone with earned income. For 2024, contribution limits are $7,000 annually ($8,000 if age 50+). Traditional IRAs offer immediate tax deductions (useful for high earners), but Roth IRAs offer tax-free growth and withdrawals (better for younger people or expecting higher tax rates in retirement). IRAs are powerful wealth-building tools; maxing out an IRA early in your career can result in millions in retirement savings due to compound growth.
IRA contribution limits and deduction phaseouts are governed by IRC Section 408 (Traditional) and Section 408A (Roth). For tax year 2025, per IRS Notice 2024-80, the IRA contribution limit is $7,000 for workers under 50 and $8,000 for those age 50 and over (the additional $1,000 catch-up is not indexed for inflation under current law). Contributions can be made between January 1 of the tax year and the federal tax filing deadline (typically April 15 of the following year, not including extensions). To contribute, you must have EARNED INCOME at least equal to the contribution amount; investment income, Social Security, and pensions don't count. Spousal IRAs let a non-working spouse contribute based on the working spouse's earned income if filing jointly. Traditional IRA deductibility: if NEITHER you nor your spouse is covered by a workplace retirement plan, contributions are fully deductible regardless of income. If covered, deduction phases out by MAGI — 2025 ranges are $79K-$89K (single) and $126K-$146K (MFJ). Roth IRA contributions phase out by MAGI: 2025 ranges are $150K-$165K (single) and $236K-$246K (MFJ); above the upper bound, no direct Roth contribution is permitted (backdoor Roth via conversion is an alternative path). Common mistakes: (1) confusing the IRA contribution limit ($7K/$8K) with the 401(k) limit ($23.5K) — they are separate annual caps that can be used simultaneously, (2) over-contributing without realizing — excess contributions trigger a 6% excise tax annually until removed, (3) missing the deduction phaseout — Traditional contributions are NON-DEDUCTIBLE above the phaseout, but you can still contribute (Form 8606 tracks the basis), (4) ignoring the pro-rata rule on backdoor Roths — if you have any pre-tax IRA balance, conversions are taxed proportionally, (5) failing to roll over old 401(k)s — leaving money in former-employer plans often means higher fees and fewer investment choices than rolling into an IRA. The IRS Publication 590-A is the authoritative annual reference.
2025 IRA contribution limits held flat at $7,000 ($8,000 with age-50 catch-up). Limits are inflation-indexed but rounded to $500 increments — no adjustment this year.
2025 Traditional IRA deduction phaseout raised: $79K-$89K single (up from $77K-$87K); $126K-$146K MFJ (up from $123K-$143K).
2025 Roth IRA phaseout raised: $150K-$165K single (up from $146K-$161K); $236K-$246K MFJ (up from $230K-$240K).
SECURE 2.0 raised RMD start age from 72 to 73; rises to 75 starting 2033.
The 2025 IRA contribution limit is $7,000 for workers under age 50 and $8,000 for workers age 50 and over (the $1,000 catch-up is not indexed for inflation). This limit applies to the COMBINED total across all your IRAs — Traditional plus Roth. Contributions for tax year 2025 can be made between January 1, 2025 and April 15, 2026 (the federal filing deadline, not including extensions). You must have at least $7,000 of EARNED INCOME (wages, salary, self-employment income) to make the full contribution. Spousal IRAs allow a non-working spouse to contribute based on the working spouse's earned income on a joint return.
Traditional IRA contributions may be tax-deductible in the year you make them (subject to MAGI phaseouts if you or your spouse is covered by a workplace plan); growth is tax-deferred; withdrawals in retirement are taxed as ordinary income. Roth IRA contributions are NOT deductible (after-tax dollars); growth is tax-free; qualified withdrawals (age 59½ + 5-year holding period) are entirely tax-free. Traditional IRAs require Required Minimum Distributions (RMDs) starting at age 73; Roth IRAs have NO RMDs during the original owner's lifetime. See the IRS Traditional and Roth IRAs comparison page for the full side-by-side.
Yes. The IRA limit ($7,000 / $8,000) and the 401(k) limit ($23,500 / $31,000 in 2025) are separate annual caps. A worker under 50 in 2025 could contribute up to $30,500 in combined tax-advantaged retirement space. However, IRA deductibility for Traditional contributions is reduced or eliminated at higher incomes when you or your spouse is COVERED by a workplace plan — the 2025 phaseout for single filers is $79K-$89K MAGI and $126K-$146K for MFJ. Non-deductible Traditional contributions are still permitted; they create basis tracked on Form 8606.
Traditional IRAs are subject to Required Minimum Distributions (RMDs) starting in the year you turn 73 (rising to age 75 starting 2033 under SECURE 2.0). The first RMD can be deferred until April 1 of the year AFTER you turn 73, but subsequent RMDs must be taken by December 31 each year. Failing to take an RMD triggers a 25% excise tax (reduced to 10% if corrected promptly) on the missed amount. Roth IRAs do NOT require RMDs during the original owner's lifetime. Inherited IRAs (both Traditional and Roth) generally require full distribution within 10 years for non-spouse beneficiaries under the SECURE Act. IRS Publication 590-B has the full distribution rules.
A "backdoor Roth" is a strategy for high earners above the direct Roth IRA contribution income limits ($165K single / $246K MFJ in 2025). Steps: (1) make a non-deductible contribution to a Traditional IRA (no income limit on this), (2) convert that Traditional IRA balance to a Roth IRA (no income limit on Roth conversions since 2010). The conversion is taxable to the extent of any pre-tax basis. The IRS Pro-Rata Rule complicates the strategy if you have OTHER pre-tax IRA balances — conversions are taxed proportionally across ALL Traditional IRA assets. The backdoor strategy works cleanly when you have no other pre-tax IRA assets. CalcFi does not provide tax advice; consult a tax professional or CPA before executing.
Early withdrawals from a Traditional IRA generally trigger ordinary income tax PLUS a 10% IRS early-withdrawal penalty on the full distribution. Several exceptions allow penalty-free (but still taxable) early withdrawals: first-time home purchase ($10K lifetime cap), qualified higher-education expenses, certain medical expenses, health insurance premiums after unemployment, total and permanent disability, substantially equal periodic payments (SEPP / 72(t)), and a few others enumerated in IRS Publication 590-B. Roth IRA CONTRIBUTIONS (not earnings) can be withdrawn at any time tax- and penalty-free since they're already-taxed money; Roth EARNINGS withdrawn early are subject to ordinary income tax plus 10% penalty unless an exception applies.
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