Personal Finance & Estate › Retirement accounts & pensions
Individual Retirement Account (traditional IRA)
Since 1974· Account or plan
Law or rule (2026)Set by statute, regulation or the agency; numbers change yearly.
A personal tax-deferred retirement account that anyone with earned income can open at a bank or brokerage.
See it on the Personal Finance & Estate map →How it works
ERISA created IRAs in 1974. In 2026 you can contribute $7,500, plus $1,100 from age 50, if you or your spouse have earned income (wages or self-employment, not rent). Contributions may be deductible, but the deduction phases out at higher incomes if you or your spouse have a workplace plan. Growth is tax-deferred; withdrawals are taxed as ordinary income, and RMDs start at 73 or 75. Main trap: untracked nondeductible contributions (Form 8606) get taxed twice.
Why it matters for you
IRAs hold about $18 trillion, more than any other US retirement account, largely because old 401(k)s roll into them.
Rules, limits and sources (2026)
IRC Sec. 408; IRS Publications 590-A and 590-B; Investment Company Institute quarterly retirement data (about $18 trillion in 2025).
Watch out for
California shields IRAs from creditors only as far as a judge finds 'necessary for support', so protection is uncertain case by case.
Inside this (5)
Connections (8)
▸Roth IRA is the tax-free-growth cousin of Individual Retirement Account (traditional IRA)Law or rule (2026)
How they connect
Both are IRAs sharing one $7,500 limit in 2026, but the tax treatment flips. A traditional IRA may give a deduction now and taxes withdrawals; a Roth gives no deduction but tax-free qualified withdrawals and no owner RMDs. Money moves from traditional to Roth by conversion, which since 2018 can't be undone.
When it applies
Traditional IRAs began with ERISA in 1974; the Roth was added by the Taxpayer Relief Act of 1997, effective 1998.
The rule
IRC Sec. 408A defines a Roth as an IRA under Sec. 408 with special rules; IRS Publication 590-A covers both.
Watch out for
Which mix is better depends on future tax rates no one can predict; many planners favor holding both for flexibility.
▸Roth conversion moves pre-tax money out of Individual Retirement Account (traditional IRA)Standard practice
How they connect
A conversion takes money out of a traditional IRA (or pre-tax 401(k)), reports it as taxable income, and deposits it in a Roth IRA. Any nondeductible basis comes over tax-free under the pro-rata rule. The traditional IRA shrinks, and so do its future RMDs.
When it applies
Allowed since Roth IRAs began in 1998 and open to all incomes since 2010; done through the custodian and reported on IRS Form 8606.
How sure?
IRC Sec. 408A(d)(3); custodians issue Form 1099-R for the withdrawal and Form 5498 for the Roth deposit.
Watch out for
How much to convert each year, and whether to pay the tax from the IRA or outside cash, are judgment calls for a CPA.
▸SEP IRA & SIMPLE IRA (small-business IRAs) are small-business versions of Individual Retirement Account (traditional IRA)Law or rule (2026)
How they connect
SEP and SIMPLE IRAs are ordinary IRAs at the account level: same investments, tax deferral, withdrawal taxes, RMDs and 10% penalty. What differs is funding: an employer contributes (SEP) or workers defer from pay with an employer match (SIMPLE), at far higher limits than a regular IRA.
When it applies
Created by Congress in 1978 (SEP) and 1996 (SIMPLE, effective 1997) for small employers who found 401(k) paperwork too costly.
The rule
IRC Secs. 408(k) and 408(p) define them as IRAs; custodians report them on the same Form 5498 as other IRAs.
Watch out for
SECURE 2.0 allowed Roth SEP and SIMPLE contributions, but custodians have been slow and uneven in offering them.
▸Rollovers & direct transfers move old-job money into Individual Retirement Account (traditional IRA)Law or rule (2026)
How they connect
When people leave a job, a direct rollover moves the old 401(k) or 403(b) balance into an IRA with no tax, giving wider investment choices and one place to manage money. Pre-tax money goes to a traditional IRA, Roth money to a Roth IRA. Staying in the plan or moving to a new employer's plan are alternatives.
When it applies
Happens at job changes and retirement; the plan sends funds straight to the IRA custodian, ideally never through the owner's bank account.
The rule
IRC Sec. 402(c); plans must give a written rollover notice under Sec. 402(f); the IRS rollover chart.
Watch out for
Whether a rollover beats staying put depends on fees, creditor protection and the age-55 rule; advisers paid on IRA assets have a conflict.
▸10% early-withdrawal penalty & exceptions (before 59½) applies to early withdrawals from Individual Retirement Account (traditional IRA)Law or rule (2026)
How they connect
Taking money out of a traditional IRA before 59½ triggers income tax plus the 10% federal penalty (2.5% more in California) unless an exception applies. IRAs have exceptions 401(k)s lack: up to $10,000 for a first home, college costs, and health premiums while unemployed.
When it applies
Applies under IRC Sec. 72(t) to every IRA; SIMPLE IRA withdrawals in the first two years of participation face 25% instead.
The rule
IRS Form 5329 is where the penalty or an exception is claimed; the IRS exceptions chart lists which apply to IRAs.
Watch out for
Whether the 72(t) equal-payment option is worth its rigidity (breaking the schedule triggers back penalties) is a judgment call for a CPA.
▸Individual Retirement Account (traditional IRA) passes to heirs via Beneficiary designations (they override your will)Law or rule (2026)
How they connect
An IRA passes only by its beneficiary form, not by will or trust unless the trust is named. The choice drives taxes: a spouse can roll it into their own IRA; most other heirs must empty it within 10 years; naming the estate often brings the least favorable payout rules.
When it applies
Applies at the owner's death; the 10-year rule for most heirs came with the SECURE Act, for deaths starting in 2020.
The rule
IRC Sec. 401(a)(9) and the final IRS regulations of July 2024 set inherited-IRA payout rules by beneficiary type.
Watch out for
Whether to name a trust, a charity or individuals depends on control needs and heirs' tax brackets; ask your CPA and attorney.
▸Individual Retirement Account (traditional IRA) cannot be retitled into Revocable living trustWatch out
How they connect
You can't retitle an IRA into a living trust; changing the owner counts as cashing it out, making the whole balance taxable. Instead, the IRA stays in your name and you may name the trust as beneficiary, which needs careful drafting to preserve payout options.
When it applies
A common trap during trust funding, when owners or advisors try to move every account into the trust's name.
How sure?
IRC Sec. 408 requires an IRA to be held for an individual; IRS regulations set 'see-through' trust rules for trusts named as beneficiaries.
Watch out for
Whether naming a trust instead of individuals is worth the complexity depends on heirs' ages, maturity and needs; planners differ.
▸Romance & crypto 'pig-butchering' scams often drain savings from Individual Retirement Account (traditional IRA)Watch out
How they connect
Victims who run out of cash often turn to retirement accounts. An IRA withdrawal is taxed as income, plus a 10% penalty before 59½, even though the money was stolen. A 2025 IRS memo said some profit-motivated scam losses may be deductible as theft losses; pure romance losses generally are not. Ask a CPA.
When it applies
Typically weeks into the scam, when 'profits' look real; custodians may see repeated large IRA distributions headed to crypto exchanges or overseas wires.
How sure?
IRS Chief Counsel Advice 202511015 (March 2025) analyzed five scam types; FBI and FINRA alerts describe victims liquidating retirement accounts.
Watch out for
How the IRS and courts will apply the theft-loss analysis to specific cases, and how much retirement money is lost overall, remain open.