An IRA is a retirement account you own directly, not through a job. You open it at any brokerage, fund it from your bank account, and invest in almost anything: index funds, individual stocks, bonds, CDs. The 2026 contribution limit is $7,500, plus a $1,100 catch-up if you are 50 or older, across all your IRAs combined.
Like a 401(k), an IRA comes in traditional and Roth versions. Traditional contributions may be deductible, depending on your income and whether you have a workplace plan; withdrawals are taxed. Roth contributions are never deductible; qualified withdrawals are tax-free. Roth IRAs have an income limit for direct contributions, which is why higher earners use the backdoor Roth route.
IRAs matter for three groups. People without a workplace plan use them as the main retirement account. People with a 401(k) use them for extra space or for investment choices their plan does not offer. And anyone who leaves a job can roll the old 401(k) into an IRA to keep everything in one place.
A Roth IRA has one feature no other retirement account has: you can withdraw your contributions (not the earnings) at any time without tax or penalty. That makes it a reasonable backstop behind an emergency fund.
The common mistake is contributing and then leaving the money in cash. The account is a container; it does nothing until the money inside is invested.