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Planning for retirement is essential for almost everyone, and, for the most part, people either do it through employer-sponsored programs or their own savings plan. And one of the mainstays of the do-it-yourself plans is the individual retirement account (IRA).
But people often have questions about IRAs. Questions can range from the basics — like understanding what the difference is between an IRA and other retirement accounts — to the more complicated — such as whether to use a Roth conversion prior to retirement.
Indeed, especially in more complex situations, many opt to consult a financial professional about IRA strategies.
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But understanding the basics of IRAs is a good first step to starting such conversations. So, let’s look at where IRAs stand among retirement planning options and some of the advantages and risks associated with this retirement workhorse.
The IRA versus other retirement accounts
Traditional IRA basics
For those interested in reading the tax code itself, the Internal Revenue Code provides for IRAs under Section 408. Believe it or not, the IRS provides a definition of IRAs in relatively plain English:
“An individual retirement arrangement (IRA) is a tax-favored personal savings arrangement, which allows you to set aside money for retirement. There are several different types of IRAs, including traditional IRAs and Roth IRAs. You can set up an IRA with a bank, insurance company, or other financial institution.”
An IRA is a type of defined contribution plan, meaning the owner decides how much to contribute, and contributions are subject to annual limits. (This differs from a pension, which is a defined benefit program.)
The balance in an IRA grows over time, through contributions and any investment earnings. At retirement, the assets in the account are available to provide the account owner a source of income.
A traditional IRA is a tax-deferred retirement savings arrangement. Typically, contributions are tax deductible for the year the contribution is made (subject to income limitations), and earnings from interest, dividends, and capital gains are able to grow inside the account on a tax-deferred basis. When the owner’s original contributions and investment earnings are withdrawn during retirement, the distributions are taxed as regular income.
Roth vs. traditional IRAs
In addition to the traditional IRA, the Internal Revenue Code also allows savers to establish Roth IRAs. Contributions to Roth IRAs are not tax deductible. For the Roth IRA owner, any earnings that grow inside the Roth are generally not subject to current income tax. Subject to certain qualifications, qualified distributions, and/or distributions that are a return of contributions, aren’t subject to tax.
Traditional IRAs are advantageous for individuals who expect their taxable income will be reduced during retirement and, therefore, subject to a lower marginal tax rate during retirement than during their working years. Roth IRAs provide tax-free income during retirement, but the owner has no current income tax deduction available. (Related: 8 FAQs on traditional vs. Roth IRAs)
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One more distinction worth noting: traditional IRAs require you to begin taking required minimum distributions (RMDs) once you reach age 73, while Roth IRAs have no such requirement during your lifetime. (Related: Required minimum distributions (RMDs) explained)
Other retirement plans
The 401(k) is an example of an employer-sponsored, tax-deferred, defined contribution plan. There are also IRAs that are, by statute, designed for self-employed individuals: the SEP IRA and SIMPLE IRA.
In contrast to the defined contribution plans discussed here, defined benefit plans through an employer — such as pensions — often depend on an employee’s earnings and length of service. Such plans typically deliver regular payments during retirement.
IRA contribution limits for 2026
How much can you put in an IRA? The Internal Revenue Code places limitations on contributions to traditional IRAs and Roth IRAs. Specifically, there are limits on the annual amounts that may be contributed as well as income caps above which retirement savers may not make tax-advantaged contributions.
2026 IRA Contribution Limits
For tax years 2026, the total combined contributions an individual may make to all traditional and Roth IRAs cannot be more than:
- $7,500, or $8,600 if age 50 or older (thanks to a $1,100 catch-up contribution allowance).
- The amount of taxable compensation earned for the year if less than the contribution limit.
Remember, this combined limit applies across all your traditional and Roth IRAs together.
IRA tax deductions
Traditional IRA contributions may be tax deductible however, the deduction may be limited if the account owner or their spouse is covered by a plan at work OR income exceeds certain levels.
For instance, a married couple filing jointly could take a full deduction for their IRA contribution if they make less than $129,000 a year. But they’d get no deduction if they earn more than $149,000 a year. Similarly, single filers covered by a workplace plan can take the full deduction if their income is $81,000 or less; it phases out completely above $91,000.
Roth IRA contributions are not deductible; however, one’s ability to contribute is limited by filing status and income.
- Single Filers: Full contributions are allowed with a MAGI under $153,000. The limit phases out completely at $168,000.
- Married Filing Jointly (MFJ): Full contributions are allowed with a MAGI under $242,000. The limit phases out at $252,000.
You have until your federal tax deadline to make contributions for the 2026 tax year, which lands on April 15, 2027. Of course, early contributions take more advantage of compounding over time. (Learn more: The best time to contribute to your IRA)
Also, the IRS sets limits based on annual inflation and cost-of-living adjustments, which are calculated late in the year. As a result, the official 2027 limits are not published yet, but they are projected to rise slightly based on current inflation trends.
Nondeductible contributions
While the tax code allows an income tax deduction for traditional IRA contributions up to the MAGI limits discussed above, there is no income cap on contributions to an IRA. Some retirement savers may find it beneficial to make nondeductible IRA contributions.
Benefits include:
- Future growth in the IRA is tax deferred.
- If the account owner keeps track of deductible and nondeductible contributions correctly, the nondeductible (after-tax) contributions become the basis, and a portion of future distributions will likely be tax free. (Related: Nondeductible IRA contributions — and the dangers of double taxation)
Conclusion
With these basics in mind, you can see how traditional IRAs and Roth IRAs can be useful options in planning for retirement. And there are certain conversion and so-called backdoor Roth strategies that can be employed, which make IRAs even more versatile.
Additionally, IRAs can be used in conjunction with other plans to help achieve particular financial goals. (Related: How a 401(k), Roth combo can help younger savers)
Keep in mind that early withdrawals from a traditional IRA before age 59½ are generally subject to income tax plus a 10 percent penalty — another reason to plan ahead.
Of course, choosing a retirement account type, deciding when to contribute, and planning for tax treatment is an individual decision. But if you are interested in opening an IRA, a MassMutual financial professional can help you look at options. You can get started here.
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Frequently Asked Questions about IRAs
Q. What is the difference between a traditional IRA and a Roth IRA?
A. The main difference is how each is taxed: traditional IRA contributions may be tax-deductible now, but withdrawals in retirement are taxed as ordinary income, while Roth IRA contributions are made with after-tax dollars, allowing any earnings to grow without current taxation and qualified withdrawals to be tax-free. Your choice often comes down to whether you expect to be in a higher or lower tax bracket in retirement.
Q. Can I contribute to both a traditional IRA and a Roth IRA in the same year?
A. Yes — you can contribute to both types in the same year, but the $7,500 limit (or $8,600 if you are 50 or older) for 2026 applies to the combined total across all your IRAs. So, you might split contributions between the two, as long as the combined amount doesn't exceed the annual cap.
Q. What is a nondeductible IRA contribution, and is it worth making?
A. A nondeductible IRA contribution is an after-tax contribution to a traditional IRA made when your income exceeds the deductibility limits — you get no current tax break, but any earnings inside the account still grow tax-deferred. Keeping careful records is essential to avoid being taxed twice on withdrawals.
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