An IRA — Individual Retirement Account — is a tax-advantaged retirement account you open and control yourself, independent of any employer. Unlike a 401(k), there's no employer match and no plan administrator choosing your investment menu; you open it through a brokerage, choose your own investments, and contribute directly.

The two main types, traditional and Roth, differ in exactly one core way — when you get the tax break — but that single difference cascades into nearly everything else worth knowing about them.

Traditional vs. Roth: The Core Difference

Traditional IRA contributions may be tax-deductible in the year you make them, lowering your taxable income now. In exchange, withdrawals in retirement are taxed as ordinary income — you're deferring the tax bill, not avoiding it.

Roth IRA contributions are made with after-tax dollars — no deduction now. In exchange, qualified withdrawals in retirement, including all the growth the account has earned, come out completely tax-free.

The simplest way to think about it: a traditional IRA taxes the money on the way out; a Roth IRA taxes the money on the way in. Which one benefits you more depends largely on whether you expect your tax rate to be higher now or in retirement — a genuinely uncertain question, which is part of why some people contribute to both.

2026 Contribution Limits

Per the IRS, for 2026:

Contribution limit (combined across traditional and Roth): $7,500

Catch-up contribution (age 50 or older): an additional $1,100, bringing the total to $8,600

That combined limit is important: the $7,500 cap applies across all your IRAs together, not $7,500 per account type. If you contribute $4,000 to a traditional IRA in a given year, you can only contribute up to $3,500 more to a Roth IRA that same year, not another full $7,500.

Notably, 2026 is the first year the IRA catch-up contribution has increased above its original $1,000 figure — a SECURE 2.0 Act provision put it on an inflation-indexed track starting in 2024, and 2026 is when that indexing first pushed it higher, to $1,100.

Roth IRA Income Limits: Not Everyone Can Contribute Directly

Unlike a 401(k), Roth IRA eligibility depends on your income. For 2026, based on Modified Adjusted Gross Income (MAGI):

Inside the phase-out range, your allowed contribution shrinks proportionally rather than dropping straight to zero. For example, a single filer with a $160,000 MAGI is roughly 47% of the way through the $153,000–$168,000 range, which works out to a maximum allowed Roth contribution of about $4,000 instead of the full $7,500 — the IRS rounds these reduced limits to the nearest $10.

Traditional IRA: No Income Limit to Contribute, But Deductibility Can Be Limited

Anyone with earned income can contribute to a traditional IRA regardless of how much they make — there's no income cap on the contribution itself. What income can affect is whether that contribution is tax-deductible.

If you (or your spouse) are covered by a workplace retirement plan like a 401(k), your ability to deduct traditional IRA contributions phases out at certain income levels — for 2026, roughly $81,000–$91,000 MAGI for single filers covered by a workplace plan, and $129,000–$149,000 for a married couple filing jointly where the contributing spouse is covered. If neither spouse is covered by a workplace plan, the traditional IRA deduction generally isn't limited by income at all.

This creates a specific, often-missed scenario: a high earner covered by a 401(k) at work can still contribute to a traditional IRA — they just may not get to deduct it, resulting in a non-deductible contribution that still grows tax-deferred but doesn't reduce current taxable income.

The Backdoor Roth: A Workaround for High Earners

Because the traditional IRA has no income limit on contributions, but the Roth IRA does, high earners who are shut out of direct Roth contributions sometimes use a strategy called a backdoor Roth IRA: contribute (non-deductible) to a traditional IRA, then convert those funds to a Roth IRA shortly after.

This effectively routes around the Roth income limit, since the conversion step itself isn't subject to the same income restriction that applies to direct contributions. It's a well-established strategy, but the tax mechanics can get more complicated if you also hold other pre-tax traditional IRA money, since conversions are generally taxed proportionally across all your traditional IRA balances — which is a detail worth discussing with a tax professional before attempting it, not a simple copy-paste move.

What Happens If You Contribute Too Much

Contributing more than your allowed limit — whether it's the flat $7,500/$8,600 cap or a reduced Roth limit from the income phase-out — creates an excess contribution, which the IRS taxes at 6% per year for every year the excess remains in the account uncorrected. Catching and correcting an excess contribution (typically by withdrawing it, plus any earnings on it, before your tax filing deadline) avoids that penalty from compounding year after year.

IRA vs. 401(k): Choosing Where Extra Savings Go

These two account types aren't competitors so much as complements. A common, commonly recommended sequence:

1. Contribute enough to your 401(k) to capture the full employer match, if one is offered — that's an immediate, guaranteed return no IRA can match.

2. Contribute to an IRA (traditional or Roth, depending on your situation) up to its annual limit, taking advantage of its typically broader investment menu.

3. Return to the 401(k) for any additional retirement savings beyond that, up to its higher annual limit.

That sequence isn't a rule everyone must follow — someone without an employer match, for instance, might reasonably prioritize the IRA first — but it's a common framework precisely because it captures the 401(k)'s free match money before relying on either account's tax advantages alone.

Frequently Asked Questions

Can I contribute to both a 401(k) and an IRA in the same year?

Yes. They have separate limits, and having a 401(k) doesn't prevent IRA contributions — though it can affect whether a traditional IRA contribution is deductible, as described above.

Can I have both a traditional and a Roth IRA?

Yes, but your total contributions across both are capped by the single combined limit ($7,500, or $8,600 with the catch-up, for 2026) — you're not multiplying your limit by opening more accounts.

What counts toward MAGI for Roth IRA purposes?

MAGI starts with your Adjusted Gross Income and adds back certain deductions, such as student loan interest and specific foreign income exclusions. For many W-2 employees without those deductions, MAGI and AGI end up very close, but they aren't guaranteed to be identical.

Is the backdoor Roth strategy legal?

Yes, it's a widely used, IRS-acknowledged strategy, not a loophole in the sense of being against the rules — though the tax treatment can be more complex if you hold other pre-tax traditional IRA balances, which is worth understanding before using it.

What happens to my IRA when I die?

IRAs pass to a named beneficiary and are generally not part of the probate process when a beneficiary designation is properly on file, though the tax treatment for the beneficiary depends on their relationship to you and current tax law — a topic worth discussing with an estate or tax professional given how frequently these rules have changed.

Key Takeaways

An IRA is a self-directed retirement account, with the traditional-vs-Roth choice coming down to whether you take your tax break now (traditional) or later (Roth). For 2026, the combined contribution limit is $7,500 ($8,600 with the 50+ catch-up), and Roth eligibility phases out at higher incomes while traditional IRA contributions remain open to anyone, with deductibility the part that can be limited by income and workplace coverage.

The IRA and the 401(k) aren't rival products — they're complementary tools with different strengths (employer match on one side, broader investment choice and Roth income workarounds on the other), and most people benefit from understanding how to use both rather than picking just one.

Sources

• Internal Revenue Service — 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500

• Internal Revenue Service — Notice 2025-67, 2026 Amounts Relating to Retirement Plans and IRAs

This article is for general educational purposes only and does not constitute financial, investment, tax, or legal advice.

Last updated: August 2026