Individual Retirement Accounts (IRAs)

Individual retirement accounts (IRAs) help you save money for retirement when you’re employed. They offer tax advantages so you can put more money away for your future. From contribution limits and tax deductions to rollovers and conversions, here’s what to know about both Roth and traditional IRAs.

Frequently Asked Questions

  • What are individual retirement accounts (IRAs)?

    Individual retirement accounts (IRAs) are retirement savings accounts that individuals who are employed can use to save and invest more money for their future. Different types of IRAs offer different tax advantages. Money in an IRA is invested which allows it to potentially grow in value over time.

  • When did individual retirement accounts begin?

    Individual retirement accounts (IRAs) were first introduced in 1974 via the Employee Retirement Income Security Act (ERISA). They were at first only offered to workers who did not have a pension, but in 1981, the government made them eligible for all workers and spouses.

  • What are the different types of individual retirement accounts?

    There are several different types of individual retirement accounts (IRAs), including traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, and rollover IRAs. All have different tax advantages that benefit different people based on their work situation.

  • Who is eligible for an individual retirement account?

    You’re eligible for an individual retirement account (IRA) if you have what the IRS determines as “earned income”—wages, salary, tips, commissions, self-employment income, or non-taxable combat pay. If you do not have earned income, but are married to someone who does, you may be eligible for an IRA. Even if you have an employer-sponsored retirement account, you can have an IRA.

  • How are IRAs taxed?

    Money in a traditional IRA is not taxed until you withdraw it in retirement. At that time, the amount you pay in taxes depends on your adjusted gross income and any tax deductions you claim when filing your tax return. Money you contribute to a Roth IRA is made with after-tax dollars, so you do not pay taxes on distributions or withdrawals in retirement.

  • How many IRAs can you have?

    You can have multiple IRAs—there is no limit. You can have more than one traditional or Roth IRA, or a mix of both. However, the contribution limit for the year applies to all of your IRAs, not each one individually. So if you have two IRAs, you can still only contribute up to the maximum amount for that tax year.

  • How do inherited IRAs work?

    If you inherit an IRA from your spouse, you can become the account owner of the IRA, roll it over into another IRA you own, or act as a beneficiary and make a plan to take distributions. If you inherit an IRA from someone else, you will have to make a plan to take distributions. Inherited Roth IRAs generally need to be distributed. They can be treated as your own only if you’re the spouse of the deceased.

  • How do you open an IRA?

    You can open an IRA at any time. Banks and brokerage firms often offer IRAs, so look around to find an institution you trust. You can open a new IRA with money that you rollover from an existing retirement account, or you can start it with money that you transfer from your checking or savings account. When choosing an IRA, consider minimum balance requirements, account costs or fees, and more.

Key Terms

Explore IRAs

Helping mom with some of her home finances
Minimum and Maximum IRA Age Limits
Couple reviewing the balance in their IRAs at a laptop at home
Consider the Hidden Tax Benefits of Nondeductible IRA Contributions.
required minimum distribution rules: what to know
The What, When, and How Much of Required Minimum Distributions
A young woman meets with a financial planner to discuss early retirement.
How to Use 72(t) Payments for Early IRA Withdrawals
A smiling woman at a white home desk with a monitor, holding a cup of coffee
SEP-IRA Contribution Limits and Deadlines
older couple Looking at their individual retirement accounts
Demystifying Individual Retirement Accounts—IRAs
Couple using digital tablet in kitchen
Learn How to Make a Spousal IRA Contribution and Who's Eligible
182667184.jpg
Inherited an IRA From Mom or Dad? Here's What You Can Do With It.
Graphs, charts and a calculator
10 Things You Need to Know About IRA Rollovers
Woman paying bills on laptop
IRA Limits on Contributions and Income
Couple reviewing the beneficiary designation on their IRAs
The Pros and Cons of Choosing Your IRA Beneficiary
A retired couple enjoy a cup of coffee on their porch.
5 Rules You Need to Know About IRA Withdrawals
A parent and child look over retirement information.
IRA Contribution
Financial advisor and client calculating figures at a bank
IRA Transfer
a collection of "fine" signs
How the IRA Early-Distribution Penalty Works
Woman using laptop at table
2021 and 2022 Contribution Limits for 403(b) Plans
Person working on a laptop in an office
IRA vs. 401(k): Which Should I Choose?
Roth, IRA, and 401K "nest eggs" laying on a bed of twenty dollar bills for retirement
What an IRA Is for and How It Helps Individuals Save for Retirement
Giving best advice to senior couple
A Smart Strategy for Withdrawing Money From Your Retirement Funds
Illustration of taking money out of an IRA, as explained in article.
What to Expect When Taking Money Out of an IRA
What to Know About the Self-Directed IRA: Self-directed IRAs offer non-traditional investments other than the usual stocks, bonds, ETFs, mutual funds, and CDs—like real estate investments and livestock It’s vital to accurately value your investment every year and report the value to your IRA custodian Make sure to examine all of the potential fees and expenses that will impact the overall return on your investment One risk is not being able to access the value of your investment to make distributions when you may need the money the most during your retirement years
How to Invest in Real Estate With a Self-Directed IRA
Nurse checks notes while talking on phone
457(b) Contribution Limits for 2019
Man in tie sits on outdoor bench looking dejected
How to Make an Early Withdrawal From Your IRA Without Paying the Fee
Business woman sitting at a desk in front of a computer
Self-Employed? This Might Be Your Best Option for Retirement
A husband and wife looking at their finances.
How Annual IRA Contribution Deadlines Actually Work in Your Favor
A man and woman review paperwork together.
Spousal IRA Contribution and Deduction Limits
A pile of money.
When You Must and Shouldn't Withdraw Money From Your Traditional IRA
Gold mining pick stuck in gold
Should You Invest in a Gold IRA?
an older woman reading documents pertaining to her deceased spouse's IRA.
The Rules for What You Can Do With an IRA Inherited From Your Spouse
Explaining his options regarding the deal
Here's Why You Should Consider an IRA Rollover When You Leave Your Job
Couple viewing retirement plan
The Most Important Reasons to Consolidate Retirement Accounts
Cheerful businessman working from home on phone
Small Business Owners: Offer a SIMPLE IRA Plan
Woman doing accounts
SEP-IRA: A Great Way for the Self-Employed To Save for Retirement
A couple working with a financial advisor in an industrial office.
Understanding Your Rollover IRA
The next numbers are as follows
Frequently Asked Questions About Tax-Free Retirement Accounts
A young man reviews his investments using a laptop.
How to Do a SIMPLE IRA Rollover
Doctor talking to patient about prescription
Is a Health Savings Account Another Retirement Plan?
Senior woman working on paperwork at a home table
How to Roll Over SIMPLE IRA Assets Into a New 401(k) Plan
Expat Americans working with local coworkers
Individual Retirement Accounts for Americans Working Abroad
Man talking to financial advisor about an inherited 401(k)
What to Do With an Inherited IRA or 401(k)
Taking the day to sort her household budget
IRA Bankruptcy Protection
401(k)
How to Avoid Mandatory Withholding With an IRA Rollover
Self employed person saving for retirement.
The Scoop on SEP IRAs for Small Business Owners and Self-Employed
Kayak roll
What to Know Before You Start an IRA Rollover
retired couple_planning
How Retirees Can Invest Surplus Funds in Retirement
A couple discusses their IRA at a glass table in their home
Is Unemployment the Right Time To Save for Retirement?
A young investor debates her SDIRA options.
Self-Directed IRA
A couple calculating their finances at home
Roth IRA Income Limits
A person wearing glasses and a tank top looks at a laptop while sitting at a table
How Many Roth IRAs Can I Have?
Colleagues look over some documents.
Index Fund vs. Mutual Fund for Roth IRA: Which Is Better?
A couple looks at a laptop while sitting in bed, smiling, one with an arm around the other's shoulders
Top 4 Benefits of a Roth IRA
A couple discusses finances in their kitchen. One holds a newspaper and a mug.
Rollover IRA vs. Roth IRA: What's the Difference?
A young girl kisses the cheek of an older lady.
What Is an Average Roth IRA Return Rate?
 A woman has a picnic with two toddlers.
Is a Roth IRA a Pre-Tax Investment?
A woman laying in a hammock looks at a phone.
TSP Max Contributions for 2022
Two people looking at a laptop
What Are the Distribution Rules for a Roth IRA Beneficiary?
Two women, sitting at a cafe, looking into a smart phone
Should You Open a Roth IRA? Here’s What To Consider
 An older man and a child read a book together on the floor.
Inherited Roth IRA
Two people looking a vacant apartment with a realtor
Can You Withdraw From a Roth IRA To Purchase a Home?
Two women talk with each other.
Why You Should (and Shouldn't) Max Out Your Roth IRA
 
 
 
 

IRAs:

More in Retirement Planning: