Retirement
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.
Quick Facts
PRACTICAL EXAMPLE
An investor contributes $7,500 to their IRA for the 2026 tax year. Over 25 years, if the account earns an average annual return of 7%, the value grows to approximately $43,300. In a traditional IRA, taxes are deferred until withdrawal; in a Roth IRA, withdrawals of earnings are tax-free.
Explore Related Financial Tools
Roth vs Traditional IRA
Evaluate whether a pre-tax Traditional or tax-free Roth IRA maximizes your retirement.
FIRE Target Calculator
Calculate your exact Financial Independence number using the 4% rule.
ETF Growth Simulator
Visualize compound interest and toggle inflation to see real purchasing power.
Explore Related Financial Guides
Traditional vs. Roth IRA: Tax Optimization Strategies under IRS Rules
Learn the tax code mathematics behind Traditional and Roth IRAs, how contribution limits apply for 2026, and how to evaluate your current vs future tax brackets under IRS guidelines.
The Backdoor Roth IRA Strategy: Navigating the IRS Pro-Rata and Conversion Rules
A complete 2026 guide to the Backdoor Roth IRA: Pro-Rata Rule explained with full numerical examples, the reverse rollover solution, Mega Backdoor strategy, and SECURE 2.0 catch-up changes. All figures verified against IRS Notice 2025-67 and Rev. Proc. 2025-32.
Learn More Key Concepts
Disclaimer: NetWorthFlow provides financial calculators, simulators, and projection tools for informational and educational purposes only. None of the calculations, data, or results displayed on this website constitute professional financial, investment, tax, or legal advice. All calculations are mathematical models based on user-supplied variables and general assumptions, which may not reflect real-world market outcomes. Always consult with a certified financial planner, licensed investment advisor, or qualified tax professional before making any financial decisions.
Automated tools are not a substitute for professional counsel. We strongly advise that you consult a qualified Certified Financial Planner (CFP®), Registered Investment Adviser (RIA), Certified Public Accountant (CPA), or legal expert before making significant decisions regarding taxes, mortgages, retirement planning, investments, or debt management.