Do you know the 8 IRA Facts That Could Help You Retire Smarter?
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There are several types of Individual Retirement Accounts (IRAs), the most common being the traditional IRA and the Roth IRA. Each has its own rules for contributions, withdrawals, and taxes. Understand these differences to choose the plan that’s right for you.
1. You Can Have Multiple IRAs, but Maximum Contributions Are Cumulative
The Internal Revenue Service (IRS) has an annual contribution maximum for all IRA accounts. For 2025, those limits are $7,000 for account holders under age 50 and $8,000 for those 50 and older.
If you have a traditional IRA and a Roth IRA, the maximum applies to your total contributions across accounts. For example, if you’re 48, you could contribute $4,000 to your traditional IRA and $3,000 to your Roth — but you can’t go over that $7,000 max across both.
2. You Can Have an IRA and an Employer-Sponsored Retirement Plan
If you or your spouse have a 401(k), 403(b), or other work-based retirement plan, you can still open an IRA. Income restrictions still apply for Roth IRA contributions, and your tax deductions for a traditional IRA may be lower.
3. Roth IRAs Have Income Maximums for Contributions
Roth IRAs only allow contributions from account holders whose modified adjusted gross income (MAGI) is at or below a certain level. In 2025, you can contribute up to the maximum amount if your income is $150,000 or less for an individual or $236,000 for a married couple filing jointly.
If your income is between $150,000 and $165,000 for an individual, or $236,000 and $246,000 for a married couple, you can still contribute, but the maximum is less. Above that higher number, Roth IRAs don’t accept contributions.
These maximums can change from year to year, so keep an eye on the IRS website.
These maximums can change from year to year, so keep an eye on the IRS website.
4. Traditional IRA Contributions Are Tax-Deductible, With Restrictions
If you don’t have a work-based retirement plan, you can subtract all contributions from your taxable income. If you do have a plan, or you and your spouse both have plans, you’ll need to be under annual income limits to take the deduction.
In 2025, single filers with incomes up to $79,000 can take the full deduction. For married couples filing jointly, that limit is $126,000. After that, the IRS allows partial deductions for individuals earning under $89,000 or couples earning under $146,000.
5. Roth IRA Withdrawals Are Tax-Free When Eligible
Roth IRA contributions come from after-tax dollars, so you won’t pay income tax on withdrawals of earnings if you meet two conditions:
- You’re 59 1/2 or older.
- You’ve had the account for five years or more.
You can withdraw before meeting either milestone, but your earnings may be subject to taxes or penalties.
6. Certain Withdrawals Are Penalty-Free
In most cases, the IRS charges a 10% penalty tax on withdrawing earnings if the account holder is under age 59 1/2. If you have a Roth IRA, having the account for five years can excuse you from the penalty, but you’ll still owe taxes.
Certain types of withdrawals also excuse you from the penalty. These include:
Certain types of withdrawals also excuse you from the penalty. These include:
- Qualified birth or adoption expenses, up to $5,000 per child
- Qualified higher education expenses
- First-time home purchase, up to $10,000
- Personal or family emergency expenses, up to $1,000, with restrictions on employer contributions
- Non-reimbursed medical expenses, over 7.5% of annual gross income
These earnings withdrawals are still subject to income tax, unless they meet the requirements for tax-free Roth account withdrawals.
7. Roth IRAs Don’t Have Minimum Income Distribution, but Traditional IRAs Do
Traditional IRAs have required minimum distributions (RMDs) beginning at age 73. The amount of your RMD depends on your account balance, age, and life expectancy.
Life expectancy factors can get complicated. You can reference the IRS’s published tables, use an online RMD calculator, or ask a financial advisor for help. The statements you receive from your plan provider should also specify your RMD, if relevant.
Roth IRAs don’t have RMDs. You can choose how much to withdraw each year, while the remaining amount continues to grow in your account.
8. You Can Leave an IRA to a Loved One
You can name a beneficiary to receive your IRA if you pass away before withdrawing all of your funds. Heirs don’t need to wait until they’re 59 1/2 to avoid withdrawal penalties, but the tax rules stay the same.
Roth IRA withdrawals are tax-free, as you already paid taxes on the income. Traditional IRA withdrawals are subject to income tax.
There are special rules for inherited IRAs, including minimum distribution requirements. Those requirements differ based on who inherits. Ensure you understand these rules and review them with your designated beneficiary, if possible.
Your Retirement Account Options
Traditional and Roth IRAs are only two of the types of IRAs available. Small business owners may wish to consider a SIMPLE or SEP IRA. Spousal IRAs are available if you or your spouse doesn’t earn an income, and rollover IRAs let you move money from employer-sponsored plans. Understand all your options before making a decision.
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