What is the difference between a Traditional IRA and a Roth IRA?
A Traditional IRA offers a potential tax deduction on contributions today, with growth that is tax-deferred until withdrawal. A Roth IRA is funded with after-tax dollars, meaning contributions are not deductible, but all qualified withdrawals in retirement are completely tax-free. The better choice depends on whether your tax rate is higher now or in retirement. See also our RMD Calculator.
How much can I contribute to an IRA in 2025?
In 2025, you can contribute up to $7,000 per year to a Traditional or Roth IRA. If you are age 50 or older, you are eligible for a catch-up contribution, bringing your total limit to $8,000. These limits apply per person, not per account.
Are there income limits for contributing to a Traditional IRA?
Anyone with earned income can contribute to a Traditional IRA regardless of income level. However, the ability to deduct those contributions on your taxes phases out at higher incomes if you or your spouse are covered by a workplace retirement plan. A Roth IRA has direct income limits for contributions.
What rate of return should I use when estimating IRA growth?
A commonly used assumption is 6–8% average annual return for a diversified stock and bond portfolio, which roughly reflects long-term historical market performance after inflation. Conservative investors might use 4–5%, while those invested heavily in equities may use 7–10%. Past performance does not guarantee future results. You might also find our NPS (India) Calculator useful.
When can I withdraw from my IRA without penalty?
You can take penalty-free withdrawals from a Traditional IRA starting at age 59½. Early withdrawals before that age are generally subject to a 10% penalty plus income tax, though certain exceptions apply. Roth IRA contributions (not earnings) can be withdrawn at any time without penalty.
What is a SEP IRA and who is it for?
A SEP (Simplified Employee Pension) IRA is designed for self-employed individuals and small business owners. It allows much higher contribution limits than a Traditional IRA — up to 25% of compensation or $69,000 in 2025. Contributions are tax-deductible and the account grows tax-deferred, just like a Traditional IRA.
What is a SIMPLE IRA?
A SIMPLE (Savings Incentive Match Plan for Employees) IRA is a retirement plan available to small businesses with 100 or fewer employees. Both employees and employers can contribute, with employee limits of $16,000 in 2025 ($19,500 for those 50+). Like a Traditional IRA, contributions are pre-tax and growth is tax-deferred.
Should I choose a Traditional IRA or Roth IRA if I expect to be in a lower tax bracket in retirement?
If you expect your tax rate to be lower in retirement than it is today, a Traditional IRA is typically the better choice because you get the deduction now at a higher rate and pay taxes later at a lower rate. If you expect higher taxes in retirement, a Roth IRA makes more sense since you pay taxes now and enjoy tax-free income later.