What is IRA?

An Individual Retirement Account (IRA) is a personal, tax-advantaged savings vehicle designed to help individuals accumulate wealth for retirement independently of workplace plans. Established under Section 408 of the Internal Revenue Code, IRAs offer tax incentives to encourage long-term savings. The two main types are Traditional IRAs (funded with pre-tax or deductible dollars) and Roth IRAs (funded with after-tax dollars).

Contributions are capped annually by the IRS and adjusted for inflation. For the 2026 tax year, the contribution limit for both traditional and Roth IRAs combined is $7,500 (up from $7,000 in 2025). Individuals aged 50 and older can make an additional catch-up contribution of $1,100 in 2026 ($1,000 in 2025). The total contribution cannot exceed the individual's taxable compensation for the year.

IRAs provide investors with a broad array of investment options compared to employer-sponsored plans, including individual stocks, bonds, and ETFs. Upon death, IRA assets pass to designated beneficiaries according to IRS distribution rules, which were modified by the SECURE Act of 2019 to eliminate the stretch IRA for most non-spouse beneficiaries.