How IRAs Fit into Your Retirement Game Plan
Ann Garcia, CFP®
Head of Content & Author
Ann Garcia, CFP®
Head of Content & Author
Ann is a nationally recognized financial advisor and author who provides comprehensive financial planning and investment management advice to families, businesses, and individuals. She obtained her BA from the University of California, Berkeley, is a member of Phi Beta Kappa, and holds the Certified Financial Planner certification. Ann lives in Oregon with her husband and is the proud parent of two recent debt-free college graduates. In her free time, she enjoys running the Wildwood Trail and exploring Portland's vibrant food scene.
Tihomir Yankov, JD
Financial Advisor, Founder & CEO
Tihomir Yankov, JD
Financial Advisor, Founder & CEO
Tihomir is the Founder, CEO, and Registered Investment Advisor Representative of Tobi. Prior to founding Tobi in 2023, he was a consumer financial services attorney in private practice for twelve years. He earned his BA in Economics from the University of Virginia and his JD (cum laude) from American University. He lives on a small farm outside Washington, D.C. with his wife and middle-school son, perfecting the art of keeping their alpaca, llama, horses, and sheep in a semi-perfect state of harmony. Their rescued alpaca became the inspiration for the company's mascot.
What Is an IRA?
An IRA is a retirement investment account that offers tax benefits—just like a 401(k) or 403(b)—but with a key difference: you don't need an employer to set one up. It's entirely independent, meaning your investments stay with you no matter where you work.
Most retirement tax breaks show up in two places: employer plans (like 401(k)s and 403(b)s) and IRAs. Since the tax benefits in both can add up to a lot over time, you’ll often hear them grouped together as tax-advantaged investment accounts.
If you have access to an employer retirement plan, it’s worth understanding how an IRA fits alongside it. And if you don’t, then your IRA becomes the only game in town.
The same golden rule applies to both employer plans and IRAs: try to keep the money invested until you’re at least age 59½. Withdrawing earlier can trigger taxes and usually an additional 10% early withdrawal penalty, depending on the situation.
Frequently Asked Questions about Retirement Generally
Invest in Your Employer Retirement Plan First. IRAs Should Come Second.
If you have access to an employer retirement plan, then that should always be your first and main retirement account type. And that's for five reasons:
- Universal Qualification: All employees qualify—regardless of their income, unlike IRA accounts which are subject to strict income eligibility to get the tax benefit.
- Automatic Investments: Employer plans allow for automatic investments that are taken straight out of your paycheck before the money even hits your bank account—and you're tempted to spend it.
- Higher Contribution Limits: Employer plans allow much higher contribution limits compared to IRAs. In 2026 you can contribute up to $24,500 to most employer plans (and even more if you're over 50), compared to up to $7,500 per year for IRAs.
- Roth Option Without Roth IRA Income Caps: Many employer plans now offer Roth contributions (like a Roth 401(k) or Roth 403(b)). Unlike a Roth IRA, Roth contributions in an employer plan aren’t restricted by Roth IRA income limits—if your plan offers the Roth option, you can typically use it regardless of income.
- Employer Match: Most importantly: most employers would match your own investments up to a certain percentage of your income—turbocharging your overall investment rate with the extra bonus money.
So, if you have an employer retirement plan, focus on increasing your contribution there first before you start considering IRAs. But IRAs can become a great way to supplement your employer plans if you're going to hit the maximum annual contribution limit or if you don't have access to an employer-sponsored plan.
Who Needs an IRA?
If you have a 401(k), think of an IRA as a supplementary account—it's a great way to invest even more for retirement. But if you don't have an employer-sponsored plan, then an IRA becomes your main option for tax-advantaged retirement savings.
Traditional vs. Roth: Which Is Better?
Once you’ve decided an IRA makes sense, the next question is whether your contributions should go into a Traditional IRA or a Roth IRA. The core tradeoff is simple: do you want a tax break now (Traditional) or later (Roth)? Your income can also affect what you can do—especially Roth contributions and whether a Traditional IRA contribution is deductible. And if you’re over the Roth IRA income limits, a Roth option inside an employer plan (like a Roth 401(k)) can still let you get Roth tax treatment if your plan offers it.
Traditional IRA
Contributions are tax-deductible today, resulting in immediate savings off your income taxes. For example, if you contribute $X and you’re in the Y% federal tax bracket, that could reduce your federal tax bill by about $X × Y% (state taxes may vary). Just don't be tempted to spend the tax savings like most people do because you’ll pay ordinary income taxes on withdrawals later.
This is why a Traditional IRA is also called a tax-deferred retirement account: you may be taking a deduction off your current income tax rate but you're only kicking the tax bill until after age 59½. And you're doing that with the sole expectation that your income tax bracket in retirement will be a lot lower than it is now while you're working, and that's how you save on taxes. It is a very long-term play!
But the IRS will not allow you to keep deferring your tax bill forever! So, under current rules, you'll be forced to start withdrawing money from your tax deferred accounts at age 73 so the IRS can tax it with an income tax on the amount you withdraw. These required withdrawals are called Required Minimum Distributions (RMDs), and they apply only to traditional (tax deferred) retirement accounts. This is why you should invest your immediate tax savings instead of spending them, so that way you can use that money to pay any deferred future tax bill.
Roth IRA
Contributions are not tax-deductible today, so you're investing for retirement with after-tax money—just like you would be if you were investing in a regular investment brokerage account or simply putting money in a savings account at your bank.
But the true power of Roth accounts is that you never have to worry about deferred tax bills. Instead, any withdrawals after age 59½ are 100% tax-free. Roth accounts are also not subject to RMDs once you turn 73 because you won't owe any future taxes anyway. So, if there's nothing for the IRS to tax on withdrawal, there's really no point for the IRS to force you to start withdrawing money either.
The catch is that Roth IRA contributions are income-limited (see eligibility section below), while Traditional IRA contributions are generally allowed—but the tax deduction can phase out at relatively modest incomes if you’re covered by a workplace plan. In 2026, the Traditional IRA deduction starts phasing out around $81,000 for single filers, while Roth IRA contributions don’t start phasing out until around $153,000 for single filers.
If deciding between a traditional and a Roth account feels overwhelming, the best approach for most may be to invest in both!—as long as you’re eligible for the tax perks you want from each (Roth contribution eligibility, and Traditional deductibility if you’re taking the deduction). Diversifying between Roth and Traditional IRA accounts hedges against unpredictable changes in tax laws in the future.
Frequently Asked Questions (FAQs) About IRAs
IRA Use Case Scenarios
Video Resources
Individual Retirement Accounts