What is the difference between a 401(k) and an IRA?

A 401(k) is an employer-sponsored retirement plan, meaning it's offered through your job. An IRA (Individual Retirement Account) is a personal retirement account that you open and manage yourself, independent of an employer. While both offer tax advantages, 401(k)s often have higher contribution limits and employer matching contributions, whereas IRAs typically offer more investment flexibility.

How much can I contribute to an IRA in 2026?

For 2026, the maximum contribution limit for both Traditional and Roth IRAs is $7,000. If you are age 50 or older, you can contribute an additional catch-up contribution of $1,000, bringing your total to $8,000. These limits apply across all your Traditional and Roth IRAs combined.

Can I have both a Traditional and a Roth IRA?

Yes, you can have both a Traditional IRA and a Roth IRA simultaneously. However, the total amount you can contribute across all your Traditional and Roth IRAs combined cannot exceed the annual limit ($7,000, or $8,000 if age 50 or older, for 2026). For example, you could contribute $3,500 to a Traditional IRA and $3,500 to a Roth IRA.

When can I withdraw money from my IRA without penalty?

You can generally withdraw money from your Traditional IRA without a 10% early withdrawal penalty once you reach age 59½. For Roth IRAs, qualified withdrawals (made after age 59½ and after the account has been open for at least five years) are both tax-free and penalty-free. There are also several exceptions to the early withdrawal penalty, such as for a first-time home purchase or qualified education expenses.

What happens to my IRA when I die?

When you die, your IRA passes to the beneficiaries you designated on the account. The rules for inherited IRAs depend on the beneficiary's relationship to you (spouse vs. non-spouse) and the type of IRA. For non-spouse beneficiaries, inherited IRAs are generally subject to the "10-year rule," meaning the entire balance must be distributed within 10 years following your death. Spouses typically have more flexible options, including rolling the inherited IRA into their own.

Are IRA contributions tax-deductible?

Contributions to a Traditional IRA may be tax-deductible, depending on your income and whether you are covered by a retirement plan at work. If you are not covered by a workplace plan, your contributions are fully deductible. If you are covered, the deductibility phases out at higher income levels. Contributions to a Roth IRA are made with after-tax dollars and are never tax-deductible.

What is a backdoor Roth IRA?

A backdoor Roth IRA is a strategy for high-income earners who exceed the direct contribution limits for a Roth IRA. It involves contributing to a non-deductible Traditional IRA and then converting those funds to a Roth IRA. This allows individuals to bypass the income restrictions and still contribute to a Roth, but it requires careful planning, especially if you have other pre-tax IRA balances due to the pro-rata rule.

Individual Retirement Account: Your Complete IRA Guide