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Saving for Retirement? IRAs Are an Option

A plain-language guide to traditional and Roth IRAs, their tax treatment, early withdrawal rules and the 2026 contribution limits.

Whether retirement is many years away or just around the corner, knowing your savings options is important for planning your financial future. The IRS notes that individual retirement accounts (IRAs) are just one of many ways to save. They also offer tax benefits because earnings can grow tax deferred. For tax preparers, this is a good opening to talk with clients about how an IRA might fit into their long-term plans.

Traditional IRA

  • Taxpayers may be able to claim a tax deduction for their contributions, if they qualify.
  • Annual contribution limits depend on the person's age and the type of IRA.
  • Generally, money in a traditional IRA is not taxed until it is withdrawn.
  • Withdrawals made before age 59 ½ may carry an additional 10% tax, unless the taxpayer qualifies for an exception.
  • Taxpayers usually must start taking minimum withdrawals once they reach a certain age. Special distribution rules apply to IRA beneficiaries.

Roth IRA

A Roth IRA follows the same general rules as a traditional IRA, with a few key differences:

  • Contributions do not earn a tax deduction and are made with after-tax funds.
  • Qualified distributions are tax free.
  • There is no required minimum distribution.

Contribution limits for 2026

For 2026, taxpayers can contribute a total of up to $7,500. Taxpayers who are 50 or older can contribute an additional $1,100, for a total of $8,600.

The limit applies to the combined amount contributed to traditional and Roth IRAs. It also cannot be more than the taxpayer's taxable compensation for the year. When you review a client's contribution, check the amount of taxable compensation, especially for self-employed clients whose income varies from year to year.

What to tell your clients

  • Ask whether they have an IRA and which type.
  • Confirm their age, since the contribution limit is higher for taxpayers 50 or older.
  • Review whether any early withdrawal before age 59 ½ may trigger the additional 10% tax, and whether an exception applies.
  • Note that traditional IRA owners usually must begin minimum withdrawals once they reach a certain age.
  • Remember that the combined contribution cannot exceed taxable compensation for the year.

For more detail, see IRS Publication 590-A, Contributions to Individual Retirement Arrangements, and IRS Publication 590-B, Distributions from Individual Retirement Arrangements.

Informational only, based on the IRS source linked above; not tax or legal advice for a specific situation.