Understanding IRA Accounts: What You Need to Know About Retirement Savings

Understanding IRA accounts is a key step in building a secure retirement plan. An IRA—short for Individual Retirement Account—is a foundational building block for long-term savings. As the name suggests, it's an account for an individual (not joint), but that’s where the simplicity ends. There’s a lot to understand about the different types of IRAs, their tax advantages, and when and how you can access the money.

Let’s break it down into the three most common types: Traditional IRA, Roth IRA, and SEP-IRA.

Traditional IRAs

Key benefits:

• Contributions may be tax deductible

• Investments grow tax-deferred

• Withdrawals are taxed as income after age 59½

  
  

Contribution Limits (2024–2025):

• $7,000 annually (or $8,000 if you’re age 50+)

• Total contributions across all IRAs (traditional and Roth) can’t exceed the lesser of the limit or your earned income

• Spousal IRAs are allowed if one spouse is not working

  
  

Deduction Phaseouts (if covered by a retirement plan at work):

• Married filing jointly: starts at $123,000 ($126,000 in 2025)

• Single: starts at $77,000 ($79,000 in 2025)

  
  

Withdrawals:

• Ordinary income tax applies after age 59½

• Early withdrawals (before 59½) usually trigger a 10% penalty—but there are exceptions. Qualified expenses like first-time home purchases, education, and medical bills may avoid the penalty.

  
  

Roth IRAs

Key differences from Traditional IRAs:

• Contributions are not deductible

• Withdrawals are tax-free (if conditions are met)

• No required minimum distributions (RMDs)

  
  

Income Limits for Contributions:

• Married filing jointly: phase-out begins at $230,000 (2024) and $236,000 (2025)

• Single: phase-out begins at $146,000 (2024) and $150,000 (2025)

  
  

Withdrawals:

• You can always withdraw your contributions tax-free

• Earnings are tax- and penalty-free if you’re over 59½ and have held the account for 5+ years

• If not, earnings may be subject to taxes and penalties (with some exceptions)

  
  

SEP-IRAs

Great option for small business owners and self-employed individuals

• Employer contributions only (up to 25% of compensation)

• 2024 limit: $69,000 | 2025 limit: $70,000

• Contributions are tax-deductible, and growth is tax-deferred

• Withdrawals are taxed as ordinary income

  
  

This is a flexible, higher-limit retirement savings option for those running their own business or side gig.

Final Thoughts

IRA accounts offer significant tax advantages and investment flexibility—but each type comes with its own set of rules. Whether you’re navigating contribution limits, income phaseouts, or planning your withdrawal strategy, it’s important to have a clear plan in place.

If you’re not sure which IRA is right for your situation or how to make the most of your contributions, I’m here to help. Schedule a quick call with me and let’s walk through it together.

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