---
title: IRA (individual retirement account) — what it means and why it matters | Allocate AI
description: A retirement account you open yourself at a brokerage, separate from any employer, with a $7,500 yearly limit (2026) and traditional or Roth tax treatment.
canonical: https://allocateai.io/glossary/ira
site: Allocate AI — https://allocateai.io
---

# IRA (individual retirement account)

A retirement account you open yourself at a brokerage, separate from any employer, with a $7,500 yearly limit (2026) and traditional or Roth tax treatment.

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.

[Try the Compound Interest Calculator →](https://allocateai.io/calculators/compound-interest)

## Related terms

- [401(k)](https://allocateai.io/glossary/401k) — An employer-sponsored retirement account you fund from your paycheck, with tax advantages and a yearly contribution limit of $24,500 (2026).
- [Backdoor Roth IRA](https://allocateai.io/glossary/backdoor-roth) — A way for people above the Roth IRA income limit to still fund one: contribute to a traditional IRA without a deduction, then convert it to Roth.
- [Traditional vs Roth](https://allocateai.io/glossary/traditional-vs-roth) — The choice between paying tax on retirement savings later (traditional) or now (Roth); it usually comes down to your tax rate today versus in retirement.
- [Catch-up contribution](https://allocateai.io/glossary/catch-up-contribution) — Extra retirement contributions allowed once you turn 50: $8,000 more in a 401(k) ($11,250 at ages 60 to 63) and $1,100 more in an IRA (2026).

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