For decades, retirement income in America has often been described as a three-legged stool.

The first leg is Social Security, which historically provides roughly 35–45% of a retiree’s monthly income. The second leg used to be company pensions, but those have largely been replaced by employer-sponsored plans such as 401(k)s and 403(b)s, which now provide roughly 15–20% of retirement income on average.

The third leg—and the one individuals have the most control over—is personal savings. One of the most important tools for building those savings is the Individual Retirement Account, or IRA.

This is especially important for people who don’t have a strong employer retirement plan. In those cases, personal savings often need to carry even more of the load in retirement.

Before diving into the different types of IRAs, it helps to understand one key point: an IRA itself isn’t an investment.

An IRA is simply a tax-advantaged account that holds investments. Inside an IRA, you can own many of the same assets you might hold elsewhere—stocks, bonds, mutual funds, CDs, and more.

The main benefit of an IRA is the tax treatment. Depending on the type you choose, your contributions or withdrawals may receive special tax advantages that can significantly affect your long-term financial plan.

When people talk about IRAs, they are usually referring to two primary types: the traditional IRA and the Roth IRA.

Traditional IRAs

Traditional IRAs have been around since 1974. Their main advantage is the immediate tax deduction many contributors receive.

When you contribute to a traditional IRA, you may be able to deduct that contribution from your taxable income. Your investments then grow tax-deferred, meaning you don’t pay taxes on the gains each year.

However, when you begin withdrawing money in retirement, those withdrawals are taxed as income.

In simple terms: Traditional IRA = tax break now, taxes later.

Roth IRAs

Roth IRAs were introduced in 1997, and they reverse the traditional model.

With a Roth IRA, contributions are not tax-deductible today. However, the major benefit comes later: qualified withdrawals in retirement—including investment gains—are completely tax-free.

In other words: Roth IRA = no tax break now, but no taxes later.

The decision between traditional and Roth IRAs largely depends on your expected tax situation.

If you believe your tax rate will be higher in retirement, a Roth IRA can be very attractive because you pay taxes today at a lower rate and enjoy tax-free income later.

This is why Roth accounts are often recommended for younger workers who are early in their careers and likely in a lower tax bracket.

However, the decision can become more complicated for people who are within 10–15 years of retirement. At that stage, many people are in their peak earning years and higher tax brackets, which may make a traditional IRA more appealing.

Taxes aren’t the only factor, but they are often the most important one.

Contribution limits for IRAs change periodically, and it’s important to stay current.

For 2026, the limits are:

If you’re married filing jointly, each spouse can contribute to their own IRA, even if one spouse doesn’t have earned income—as long as the household’s earned income covers the total contributions.

One important note: there is no such thing as a joint IRA. Each account must belong to an individual.

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