IRA Rules: 8 Things You Need to Know
The IRS allows for several types of individual retirement accounts (IRAs), each with its own rules. It's especially important to understand how each IRA type works when it comes to things like contributions, tax deductibility, and withdrawals because these features can affect your finances now and down the road.
For example, maybe you're on a tight budget but want to start building tax-advantaged retirement savings as soon as possible. In that case, the potential up-front tax deduction that a traditional IRA offers could help you save more now and get a head start. If you expect to be in a higher tax bracket when you retire and could benefit more from tax-free withdrawals and the option to leave your savings to a loved one tax-free, a Roth IRA could make more sense for you.
In either case, you'll need to meet certain requirements to get the benefits. The best IRA for you, if any, depends heavily on your specific situation and goals—in other words, which type of IRAs you qualify for and what you're trying to achieve with your account.
Here are eight key facts to help you make an IRA decision that's right for you.
1. You may be able to contribute to a traditional or Roth IRA, even if you have a 401(k)
Having an employer-sponsored retirement plan, such as a 401(k), 403(b), or 457 plan, doesn't automatically disqualify you from opening or contributing to a Roth or traditional IRA. However, to contribute to a Roth IRA, you'll need to stay under the income limits (see #2). And while traditional IRAs don't have income limits for contributions, high-earners may not be eligible for a tax deduction (see #3).
2. Your income could be too high for a Roth IRA
Higher income levels can reduce the amount you're allowed to contribute to a Roth IRA or make you ineligible for the year. If you're a single filer, for instance, your modified adjusted gross income (MAGI) must be below $153,000 for 2026 to contribute the maximum amount, and contributions phase out once your MAGI reaches $168,000. Married couples filing jointly must have a MAGI below $242,000 for 2026 to contribute the maximum amount, with contributions phasing out at $252,000.
3. Your tax deduction of traditional IRA contributions may be limited
Traditional IRA contributions are fully tax deductible if you (and your spouse) don't have a retirement plan at work. However, if you're single and have a plan at work or if you and your spouse both have plans at work, the deductible amount depends on your income and filing status. For example, single filers must have a MAGI of $81,000 or less to take the full deduction for 2026. Single filers with a MAGI between $81,000 and $91,000 can get a partial deduction. And those with a higher MAGI can still contribute but won't get a deduction on their 2026 taxes.
4. Roth IRA contributions aren't tax deductible, but you can withdraw them tax-free
Roth IRAs may offer more flexibility than traditional IRAs when it comes to withdrawing your money. You can withdraw your contributions anytime for any reason tax-free. And once you turn 59½ and have had the account for at least five years since your first contribution to it, you can also withdraw earnings on your investments with no federal income tax or penalty. If you expect to be in a higher tax bracket in retirement, this could lead to greater tax savings.
5. If you have more than one IRA, your total contributions can't go over the annual limit
For 2026, you can contribute up to $7,500 to a traditional IRA or Roth IRA if you're under 50—plus an additional catch-up contribution of $1,100 if you're 50 or older. You may contribute to multiple IRAs in the same year—for example, a Roth and a traditional IRA—but your combined contributions can't exceed the annual maximum. Your contributions also can't exceed your earned income for the year.
6. Early IRA withdrawals can trigger a 10% penalty, but there are exceptions
Many IRA rules affect withdrawals, especially early withdrawals. In most cases, you'll owe a 10% penalty if you take contributions or earnings out of a traditional IRA before age 59½. The 10% penalty rule for Roth IRAs can be complicated, but for earnings to be both penalty and tax-free, you must be 59½ and have had your account for at least five years since your first contribution. The IRS does allow exceptions, such as a first-time home purchase, educational expenses, unreimbursed medical costs, birth or adoption costs, and a few others.
7. You can leave an IRA to your heirs
Another feature of an IRA is that you can name beneficiaries to inherit it. Heirs don't pay a penalty for taking the money out before age 59½. But if they inherit a traditional IRA, they'll owe income tax on withdrawals. Beneficiaries of a Roth IRA can withdraw the both the earnings and contributions tax-free at the federal level as long as the original owner held the account at least five years before dying. Other rules apply to inherited IRAs, so be sure to understand your options.
8. Traditional IRA rules require you to take taxable withdrawals starting at age 73 or 75—Roth IRAs don't
One important traditional IRA rule is that account holders must start taking required minimum distributions (RMDs) at age 73 or 75, depending on your birth year. The IRS calculates your RMD based on your account balance and age, and if you don't withdraw your RMD by the deadline, you'll be subject to a penalty—up to 25% of the amount you failed to distribute. On the other hand, Roth IRAs aren't subject to RMDs, so you can leave the money in your account for potential growth or withdraw it tax-free.
RMDs may result in receiving more money than you need in any one year and increasing your taxable income. However, your financial advisor and tax professional can discuss strategies to manage RMD taxes with you.