There are eight types of IRAs, but most people only need to choose between two of them: a traditional IRA or a Roth IRA.
The rest are built for specific situations. You’re self-employed, you run a small business, you’re married to someone who doesn’t earn much, you inherited an account, or you want to hold something other than stocks and funds.
Here’s what each one does for your taxes, who it’s really for, and how to pick without overthinking it.
Which IRA fits you?
Start with the question that matters most. Do you want the tax break now or later?
A traditional IRA can lower your tax bill this year, then you pay income tax when you take the money out in retirement. A Roth IRA gives you no break today, but qualified withdrawals come out tax-free.
If you’re early in your career and expect to earn more later, the Roth is usually the better deal. You’re paying tax at today’s lower rate and never again on the growth.
If you’re in a high bracket right now and expect a smaller income in retirement, the traditional deduction is worth more.
Not sure? Plenty of people split it and put some in each. That way you’re not betting everything on what tax rates look like in 30 years.
A few shortcuts for everyone else:
- Freelancer or solo business owner with no employees: look at a SEP IRA.
- Small business that wants employees to save from their paychecks: a SIMPLE IRA.
- Married, and one of you earns little or nothing: a spousal IRA.
- You earn too much for a Roth: a nondeductible IRA, and maybe a conversion.
If you have a 401(k) at work too, the IRA is usually what you fund after you’ve grabbed the full employer match. Our breakdown of the best retirement plan for your situation walks through that order.
Types of IRAs compared
| IRA type | Who it’s for | Tax break | The 2026 limit | Income limit | Withdrawals |
|---|---|---|---|---|---|
| Traditional IRA | Anyone with earned income who wants a deduction now | Deduction now (it can phase out if you have a plan at work), taxed when you withdraw | $7,500, or $8,600 at 50+ | None to contribute. Deduction phases out at $81,000 to $91,000 single if you’re covered at work | Taxed as income. 10% penalty before 59½. Required withdrawals start at 73 |
| Roth IRA | Younger savers and anyone who expects higher taxes later | No deduction. Qualified withdrawals are tax-free | $7,500, or $8,600 at 50+ | Phases out at $153,000 to $168,000 single, $242,000 to $252,000 married filing jointly | Contributions come out anytime. Earnings are tax-free after 59½ and 5 years. No required withdrawals for the owner |
| Spousal IRA | Married couples where one spouse earns little or nothing | Same as a traditional or Roth IRA | $7,500 per spouse, or $8,600 at 50+ | Same as traditional or Roth. You must file a joint return | Same as traditional or Roth |
| Nondeductible IRA | High earners above the Roth and deduction limits | No deduction, but growth is tax-deferred | Shares the same $7,500 cap | None | Earnings are taxed, the money you put in is not. Track it on Form 8606 |
| SEP IRA | Self-employed people and small business owners | Business deducts contributions, growth is tax-deferred | Up to $72,000 per person | None | Same as a traditional IRA |
| SIMPLE IRA | Businesses with 100 or fewer employees | Pre-tax paycheck deferrals plus an employer contribution | $17,000, plus $4,000 at 50+, or $5,250 at ages 60 to 63 | None | Same as traditional, but the penalty is 25% in your first two years |
| Self-directed IRA | Experienced investors who want real estate, private companies or crypto | Traditional or Roth rules, depending on the account | Same as traditional or Roth | Same as traditional or Roth | Same, plus strict rules against self-dealing |
| Inherited IRA | People who inherit an IRA | Depends on the original account | You can’t add money | None | Most non-spouse beneficiaries must empty it within 10 years |
1. Traditional IRA
This is the classic. Anyone with earned income can put money in, no matter how much they make.
The draw is the deduction. Contributions can come off your taxable income for the year, and the money grows untaxed until you withdraw it in retirement, when it’s taxed as regular income.
The catch: if you or your spouse has a retirement plan at work, the deduction shrinks or disappears once your income passes certain limits (they’re in the limits section below). You can still contribute. You just might not get the write-off.
Bottom line: a traditional IRA makes the most sense when your tax rate today is higher than you expect it to be in retirement.
2. Roth IRA
A Roth flips the deal. You put in money you’ve already paid tax on, so there’s no deduction, but qualified withdrawals in retirement are completely tax-free. That includes all the growth.
A withdrawal of earnings counts as qualified once you’re 59½ and it’s been at least five years since your first Roth contribution, according to IRS Publication 590-B.
The money you contributed is more flexible. You can take your own contributions back out at any time without tax or penalty, which makes a Roth a decent backstop if life gets weird. Just know that pulling it out means it stops growing.
There’s also no required withdrawal for the original owner, so you can leave it alone as long as you want.
The limit is income. Above a certain level, how much you can put in phases down to zero.
One more Roth perk: up to $10,000 can come out without the 10% penalty to buy a first home. If you’re torn on that tradeoff, here’s how to decide whether to save for retirement or a house first.
3. Nondeductible IRA (and the backdoor Roth)
A nondeductible IRA is just a traditional IRA where you don’t take the deduction, usually because your income is too high to qualify for it.
On its own, it’s not much of a deal. You get tax-deferred growth, and that’s it. You’ll also need to file Form 8606 so the IRS knows which dollars were already taxed.
Where it gets interesting is the conversion. The IRS lets you convert a traditional IRA to a Roth IRA. High earners who can’t contribute to a Roth directly sometimes put money in a nondeductible IRA and then convert it, which people call a backdoor Roth.
It works best when you have no other pre-tax IRA money. If you do, part of the conversion is usually taxable, so run the numbers before you try it.
4. Spousal IRA
Normally you need your own earned income to contribute to an IRA. A spousal IRA is the exception.
If you file a joint return and one spouse has little or no pay, the working spouse’s income can fund an IRA in the other spouse’s name. It can be a traditional or a Roth, and each spouse can contribute up to the full annual limit, as long as your total contributions don’t go over the taxable pay on your joint return.
For a stay-at-home parent, this is a big one. It keeps their retirement savings from stalling for years.
5. SEP IRA
SEP stands for Simplified Employee Pension. It’s the easiest retirement plan a business can set up, and it’s popular with freelancers and solo business owners.
Only the employer contributes, and it’s flexible. You can put in a lot in a good year and nothing in a slow one. The ceiling is much higher than a regular IRA: up to $72,000 per person.
The catch for business owners with staff: if you contribute for yourself, you have to contribute the same percentage of pay for every eligible employee.
If you work for yourself, our guide to retirement plans for the self-employed compares the SEP with a Solo 401(k) and the SIMPLE IRA, since the right pick depends on how much you earn.
6. SIMPLE IRA
SIMPLE stands for Savings Incentive Match Plan for Employees. It’s built for businesses with 100 or fewer employees.
Unlike a SEP, employees put in their own money straight from each paycheck, and the employer has to chip in too. That’s usually a match of up to 3% of pay, or a flat 2% for everyone who’s eligible.
The limits sit between an IRA and a 401(k). The downside is the penalty: take money out in your first two years in the plan and the early withdrawal penalty is 25%, not the usual 10%.
For a one-person business, a SEP or Solo 401(k) usually lets you save more.
7. Self-directed IRA
A self-directed IRA follows the same traditional or Roth rules for eligibility and contributions. The difference is what you can hold.
Most IRAs stick to stocks, bonds and funds. A self-directed IRA can hold real estate, gold, privately held companies and even crypto.
You’ll need a custodian that handles these assets, and the rules are strict. The IRS bans collectibles and life insurance in an IRA. It also treats some moves, like doing repairs yourself on a rental the IRA owns, as self-dealing, which can trigger taxes and penalties.
Unless you know exactly what you want to buy and why, a regular IRA with low-cost index funds is the simpler choice.
8. Inherited and rollover IRAs
Two more you’ll run into, neither of which you really choose up front.
An inherited IRA is what you get when you’re the beneficiary of someone else’s IRA. You can’t add money to it, and most beneficiaries who aren’t the spouse have to empty it within 10 years. Spouses have more options, including treating it as their own.
A rollover IRA is a regular traditional or Roth IRA that holds money moved from an old 401(k). It’s often the cleanest way to consolidate old accounts and get better investment choices. Some brokers even pay a bonus to bring that money over, which we cover in our roundup of IRA rollover bonuses.
IRA contribution limits for 2026
The IRS raised the IRA limit to $7,500 for 2026. If you’re 50 or older, you can add a $1,100 catch-up, for $8,600 total. That cap covers all your traditional and Roth IRAs combined, not each one.
The Roth IRA income phase-outs for 2026:
- Single or head of household: $153,000 to $168,000
- Married filing jointly: $242,000 to $252,000
- Married filing separately: $0 to $10,000
The traditional IRA deduction phases out for 2026 at $81,000 to $91,000 if you’re single and covered by a plan at work, and $129,000 to $149,000 for married couples filing jointly when the contributing spouse is covered. If you aren’t covered but your spouse is, it phases out at $242,000 to $252,000.
For workplace-style IRAs, the 2026 limit is up to $72,000 for a SEP IRA and $17,000 for a SIMPLE IRA, with an extra $4,000 at 50+ or $5,250 at ages 60 to 63. For comparison, the 401(k) limit is $24,500.
You have until the tax filing deadline to contribute for a given tax year. Filing an extension doesn’t give you more time.
Taking money out
Most IRAs share the same exit rules. Take money out before 59½ and you generally owe a 10% additional tax on top of income tax, with some exceptions listed in IRS Publication 590-B.
Traditional, SEP and SIMPLE IRAs also make you start required minimum distributions at 73. Roth IRAs don’t require withdrawals while the owner is alive.
If you’re hoping to stop working well before 59½, there are legit ways around the penalty. We go through them in our guide on how to retire early.
And if you want to see whether your savings will last, a retirement planner like Boldin (formerly NewRetirement) can model withdrawals, taxes and Social Security together.
Where to open an IRA
Opening one takes about 15 minutes at most online brokers. You pick traditional or Roth, link a bank account, and choose your investments.
That last step is the one people skip. Money sitting in an IRA as cash doesn’t grow, so make sure it’s actually invested. A simple target-date fund or a low-cost index fund is plenty for most people.
Our picks for the best investment apps include several with no minimum and no charge to open an IRA.
Bottom line: pick traditional or Roth based on your tax rate, open it somewhere cheap, set up an automatic monthly contribution, and leave it alone.
FAQ
The main types are the traditional IRA and the Roth IRA. Others include the spousal IRA, nondeductible IRA, SEP IRA, SIMPLE IRA, self-directed IRA, and inherited and rollover IRAs, which each fit a specific situation.
A Roth is usually better if you expect to be in a higher tax bracket in retirement, which is common early in your career. A traditional IRA is usually better if your tax rate today is higher than you expect it to be later. Many people split their savings between both.
Yes. You can have a traditional and a Roth IRA at the same time, but the annual contribution limit covers all of your traditional and Roth IRAs combined. SEP and SIMPLE IRAs have their own separate limits.
Yes. Having a 401(k) never stops you from contributing to an IRA. It can reduce or remove the traditional IRA deduction at higher incomes, and Roth eligibility depends on your income, not on whether you have a workplace plan.
A SEP IRA is the most common choice because it is easy to set up and allows much larger contributions than a regular IRA. A Solo 401(k) can let you save more at some income levels, and you can still open a traditional or Roth IRA alongside either one.
Withdrawals before age 59 and a half generally owe a 10% additional tax on top of regular income tax, unless an exception applies. Roth IRA contributions are the exception to the rule, since you can take back what you put in at any time without tax or penalty.
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