Planning for retirement often starts with the workplace, but it doesn’t have to end there.

Individual retirement accounts, or IRAs, may offer savers an additional way to build long-term savings beyond employer-sponsored plans. With flexible contribution options and potential tax advantages, both traditional and Roth IRAs can play a key role in many retirement strategies.

Understanding how IRAs work, and how traditional vs. Roth IRAs work, can help individuals make more informed decisions about how they want to grow their future financial security.

What is an IRA?

Whether choosing a Roth IRA vs. a traditional IRA, two of the most common options, these accounts can supplement retirement savings beyond employer-sponsored plans. Unlike a 401(k) plan, in which an individual enrolls through their employer and defers a specific percentage from each paycheck, an IRA is typically set up independently through a financial services provider. In many cases, an IRA is relatively simple to open, maintain, and access.

What’s the difference between a traditional IRA and a Roth IRA?

With a traditional IRA, pre-tax contributions are permitted, and any growth is tax-deferred until assets are withdrawn. Contributions may be fully tax deductible for individuals not covered by a workplace retirement plan. If either the individual or their spouse is covered by an employer-sponsored retirement plan, they may only be eligible for partially tax-deductible (or non-tax deductible) contributions depending on income. 

Contributions to a Roth IRA, which are made with after-tax dollars, are never tax-deductible.1 However, Roth IRAs may provide long-term, tax-free growth and tax-free income when withdrawing down the road — provided the account holder satisfies certain requirements, such as the five-year holding rule. The five-year holding rule requires investors to hold their Roth IRA for at least five years from the date of the first contribution to make qualified distributions.

What are some reasons to consider an IRA?

Whether filling a retirement savings gap or adding to an existing nest egg, an IRA can serve as a practical tool for retirement planning. Here are a few reasons why.

Benefits of an IRA

Can help expand long-term retirement

Some professionals suggest an individual may need about 80% of their pre-retirement income or salary to help cover their cost of living in retirement.² If a person is already participating in a workplace-sponsored program, they’re likely off to a great start. But for those who don’t have a retirement plan at work, like a 401(k), or if they want to sock away a little more and supplement current savings in a plan, an IRA could serve as a supplemental savings vehicle.

IRAs are easy to set up and manage

IRAs are broadly accessible and generally easy to establish. In most cases, individuals can open an IRA as long as they or their spouse have taxable income. There is no age limit for opening or contributing to a Roth IRA, though income limits may affect eligibility and contribution amounts.³

Many financial institutions, including banks and brokerage firms, may allow users to open an IRA online in a short amount of time. Once opened, an IRA can be managed independently or with the support of a financial professional. Some providers may also offer automated investment services, which may help monitor and rebalance portfolios to ensure they are in line with the user’s retirement goals.

Contributing to both a 401(k) and an IRA

Because many savers can make contributions to both a 401(k) and an IRA, these accounts can be used together to expand retirement savings.

In 2025, for example, the IRS contribution limits for a traditional IRA or Roth IRA sit at $7,000.⁴ Savers who are age 50 or older can contribute an additional $1,000 in catch-up contributions. These thresholds apply to the total contributions to one or more traditional and Roth IRAs, not individual account contributions.

Remember, the IRS sets separate contribution limits for IRAs and 401(k) accounts. According to Roth IRA rules, an individual who is 35 years old can contribute the $7,000 IRA maximum as well as the maximum 401(k) contribution of $23,500, according to IRS rules, for a combined $30,500.

IRAs have tax advantages

Traditional IRAs and Roth IRAs are both tax-advantaged tools that may come with different benefits depending on financial circumstances and retirement goals. 

Anyone with earned income, as defined by the IRS, is eligible to open a traditional IRA. (Spousal IRAs are also available under certain conditions.) However, contributions to a Roth IRA may be limited based on income. In 2025, Roth IRA contributions are phased out for single filers with modified adjusted gross income (MAGI) of more than $150,000.⁵ For joint filers, the MAGI limit is $236,000.

IRAs are flexible

One benefit of contributing to a traditional or Roth IRA is the bigger lineup of investment choices offered.

In some cases, an IRA could provide access to a wider range of investment options than an employer-sponsored plan alone. This may include, among others, a diverse selection of mutual funds, stocks, bonds, and annuities. With more selections, it may be possible to build a portfolio aligned with current needs and future goals.