IRA Rules: 8 Things You Need to Know

IRAs can be a useful part of a retirement savings strategy, but the rules vary depending on the type of account you choose. Understanding how IRAs work—including who can contribute, how much you can contribute, and how withdrawals are taxed—can help you decide how they may fit into your broader retirement plan.

An IRA, or individual retirement account, is a tax-advantaged account that can help you save and invest for retirement. Depending on the type of IRA, you may receive a tax benefit either when you contribute or when you withdraw funds. Most IRAs offer a wide selection of investment options, such as individual stocks, bonds, mutual funds, exchange-traded funds (ETFs), and certificates of deposit (CDs).

Unlike an employer-sponsored retirement plan, such as a 401(k), an IRA is generally opened by an individual through a brokerage firm, bank, or other financial institution. Once the account is open, you can contribute money, choose how to invest it, and potentially benefit from tax advantages based on the type of IRA you choose. Your contributions, investment choices, taxes, and withdrawals are all subject to IRS rules.

There are two main types of IRAs to consider: traditional IRAs and Roth IRAs. The main difference is when you receive the potential tax benefit.

Roth IRAs are funded with after-tax dollars, so you don't receive an immediate tax deduction. However, qualified withdrawals (generally those made after age 59½ and after a five-year holding period) are tax-free, and contributions can generally be withdrawn at any time tax- and penalty-free. Roth IRAs are not subject to RMDs for the original owner, but you must meet IRS income limits to contribute.

In addition to traditional and Roth IRAs, there are other types of IRAs designed for specific situations, such as rolling over assets from a workplace retirement plan, saving as a self-employed individual or small-business owner, inheriting retirement assets, or contributing on behalf of a minor or spouse without earned income. 

• A rollover IRA allows you to move retirement funds from an old employer-sponsored retirement plan into an IRA. "Rolling over" your savings in this way may allow you to preserve the tax-deferred status of your retirement assets, thus avoiding taxes or early withdrawal penalties at the time of transfer.
• A SIMPLE IRA, or Savings Incentive Match Plan for Employees, is a retirement savings plan for self-employed individuals and small businesses with 100 or fewer employees. Employers can make contributions for employees, and employees can also contribute.
• A SEP-IRA, or Simplified Employee Pension IRA, is another way for self-employed individuals and business owners to set up a retirement savings plan for themselves and their employees. These accounts are funded by the employer, and contribution limits are generally higher than traditional or Roth IRA limits.
• An inherited IRA (also known as a beneficiary IRA) is opened when someone inherits a retirement account after the death of the original owner.
• A custodial IRA is a traditional IRA or Roth IRA opened by a parent, grandparent, or other custodian for a minor who has earned income for the year. The minor assumes ownership of the account when they reach the age of adulthood determined by state law.
• A spousal IRA allows a working spouse to fund a traditional IRA or Roth IRA for a spouse who does not have earned income. To qualify, the couple must file a joint tax return. 

To contribute to a traditional or Roth IRA, you generally need taxable compensation, such as wages, salaries, tips, commissions, bonuses, or self-employment income. Your annual IRA contribution for the year generally can't exceed your taxable compensation or the annual IRA contribution limit, whichever is lower. There is no age limit to contribute to a traditional IRA or Roth IRA, as long as you have taxable compensation.  

The spousal IRA may also allow a working spouse to contribute to an IRA for a spouse with little or no income, as long as the couple files a joint tax return and meets IRS eligibility rules. Other types of IRAs may have different eligibility rules.

Annual contribution limits can change from year to year and vary by IRA type. For traditional and Roth IRAs, the annual limit applies across your combined accounts. Your total annual IRA contribution also can't exceed your earned income for the year. Roth IRA contributions may be reduced or eliminated, if your income exceeds certain IRS limits. 

For example, in 2026, the total maximum contribution for traditional and Roth IRAs is $7,500. If you're under 50 and make $4,000 of traditional IRA contributions in 2026, you could only contribute up to $3,500 to a Roth IRA for that tax year, assuming you're eligible. SEP-IRAs and SIMPLE IRAs have separate contribution rules and limits.

Traditional IRA contribution limits and deduction limits are not the same. You may be able to contribute to a traditional IRA even if you can't deduct the full contribution. 

Your ability to deduct traditional IRA contributions depends on your modified adjusted gross income (MAGI), tax filing status, and whether you or your spouse is covered by a workplace retirement plan.  

If you or your spouse is covered by a workplace plan, deductions are generally fully available below the phase-out range, partially available within the phase-out range, and unavailable once MAGI reaches or exceeds the top of the range. 

If neither you nor your spouse is covered by a workplace retirement plan, your traditional IRA contribution is generally fully deductible, up to the annual contribution limit.