An IRA is an account, not an investment
You choose what it holds.
All tracks and lessons
Retirement accounts0/9
401(k) basics: don’t leave free money behindIRAs: your own retirement accountRoth vs. Traditional IRA: which is right for you?The backdoor Roth IRAThe HSA: the most tax-friendly account you're not usingSocial Security: when to claimThe 4% rule and safe withdrawalsRequired minimum distributions (RMDs)Early withdrawals and the 72(t) exception
IRAs: your own retirement account
An individual retirement account works alongside — or instead of — a workplace plan, with traditional and Roth versions.
In this lesson you will
- Compare traditional and Roth IRAs
- Know the income and limit rules exist
- Invest the money after contributing
An individual retirement account (IRA) is a tax-advantaged retirement account you open yourself at a bank or brokerage, separate from any employer. Anyone with earned income can generally contribute, up to an annual limit set by the IRS.
Traditional and Roth
- Traditional IRA: contributions may be tax-deductible; withdrawals in retirement are taxed as income.
- Roth IRA: contributions are made after tax; qualified withdrawals in retirement are tax-free.
Rules to know
Roth IRA eligibility phases out at higher incomes, and traditional IRA deductibility can phase out if you or your spouse have a workplace plan. Both have an annual contribution limit that the IRS updates — check the current year’s figures.
An IRA holds investments
Opening an IRA is only step one. Money you contribute often lands as cash until you choose investments inside the account. Many people forget this step.
Rollovers
When you leave a job, you can usually roll a workplace plan into an IRA. A direct rollover — sent straight from one provider to another — avoids withholding problems. Not tax advice — rules and limits change; check IRS guidance or a tax professional.
By the GetGuac team · Editorial policy
Three ideas to keep
Tax now or tax later
Roth versus traditional.
Limits change yearly
Check the IRS each year.
Do it in 4 steps
Check eligibility
Earned income; Roth income limits.
Choose traditional or Roth
Based on your tax rate now vs later.
Contribute regularly
Automate monthly.
Invest the contributions
Do not leave them as cash.
Cash left uninvested
Illustrative: $500 a month contributed for a year, left in cash earning 0.5%, versus invested in a fund earning an illustrative 6% (not guaranteed).
| Choice | Contributed | Approx. growth in year one |
|---|---|---|
| Left as cash at 0.5% | $6,000 | about $14 |
| Invested at an illustrative 6% | $6,000 | about $168 |
The account type gave the tax benefit; only investing the money gave it a chance to grow. Investment returns can be negative.
Where this usually goes wrong
- Contributing but never investing
- Ignoring Roth income limits
- Doing an indirect rollover by accident
If you have an IRA, log in and check whether any of it is sitting in cash.
Tools and guides for this lesson
Quick quiz
1. Who can generally contribute to an IRA?
2. Qualified Roth IRA withdrawals in retirement are…
3. After contributing to an IRA you should…
0 of 3 answered
Puzzle
You contribute $250 every two weeks (26 times a year). How much is that per year?
Show the answer
$6,500
$250 × 26 = $6,500. Check it is within the current IRS limit.