Guide to IRA Plans

The screen with five options

You opened a brokerage account to start a Roth IRA, because someone pointed you there: your 401(k) step, a calculator, this site’s order of operations. Then the form doesn’t begin with Roth. It opens with a menu: Traditional, Roth, SEP, SIMPLE, Rollover. Five options, and now you’re unsure whether you need to understand all five before you can pick one.

You don’t. For most people opening their first IRA in their twenties or thirties, this is really a one-option menu that looks like five. The Roth is your account; the other four are answers to questions you aren’t asking yet. Once you can see why, the choice takes about thirty seconds.

An Individual Retirement Account (IRA) is a retirement account you open on your own, not through an employer. Anyone with earned income can contribute, up to a yearly limit the IRS sets. If a 401(k) is the account you get because of where you work, an IRA is the one you get because you decided to save. Most people benefit from having both.

Why the Roth is yours

The case for the Roth is about timing your tax bill. You contribute money you’ve already paid income tax on, and in return the IRS never taxes it again: the contributions grow tax-free, and qualified withdrawals in retirement come out tax-free too. You pay the tax on the seed now, while it’s small, instead of on the harvest decades later.

Early in your career is exactly when that trade is best: your bracket is usually about as low as it will ever be, with decades of raises still ahead, so paying the tax now at today’s lower rate is the bet that tends to win.

For most young savers the answer is Roth, and the Roth vs. Traditional guide walks through the narrow cases where Traditional wins. Two practical things are worth knowing once you’ve picked.

First, the account is the container, not the investment. Opening a Roth and moving money in is only half the job; the cash sits there earning almost nothing until you place a buy order, typically for a broad-market or target-date index fund. An empty IRA, or one left in cash, doesn’t compound.

Second, the Roth’s tax-free treatment runs on a five-year clock that starts with your first contribution. Opening the account this year, even with a small amount, starts that clock now while the stakes are low, so it has long since run out by the time the balance is large enough to matter.

What waiting costs

The real cost of the freeze isn’t the research time. It’s the contributions that don’t happen while you “figure it out.”

Say you contribute the 2026 cap, $7,500 a year, from age 25 to 65 at a 7% return after inflation. The account grows to about $1.6 million. Start the same habit two years later, at 27, and it lands closer to $1.4 million. Those two years of waiting cost roughly $230,000, even though the contributions you skipped added up to just $15,000. The gap is compounding you can never buy back.

Run your own numbers above. The contribution you can keep up with matters far more than waiting for the perfect one.

The other four, and when you’d need them

So why does the form show five options if you only need one? Because an IRA is a single idea, a personal retirement account, that comes in five tax-and-eligibility flavors, and the form has no idea who you are. Here are all five, each with the one question that decides whether it’s for you. For most readers, four of them are a quick “not me, not yet.”

2026 contribution limits

These are ceilings, not targets. Putting in $50 a month still counts; you don’t need the full $7,500 to open the account or to benefit. Contribute what you can keep up, and raise it as your income grows.

Roth IRA income limits

The Roth has one catch the others don’t: above a certain income, you can’t contribute to it directly. For 2026, the contribution starts to phase out at:

• Single filers: $153,000 to $168,000 modified AGI
• Married filing jointly: $242,000 to $252,000 modified AGI

If your income is below these numbers, which covers most people early in their careers, none of this applies: open the Roth and contribute. Above the upper bound, you can’t contribute directly. Higher earners sometimes work around it through a Traditional-then-convert sequence (a backdoor Roth), but it’s an advanced move; talk to a CPA before trying it.

What keeps the money in until retirement

A retirement account is built to keep money invested until you retire, and the rules nudge it that way. Three are worth knowing before you start:

1. Early withdrawals before age 59½ are generally hit with a 10% penalty plus income tax (on Traditional). Some hardship and first-home-buyer exceptions exist.
2. Roth contributions (not earnings) can always be withdrawn tax- and penalty-free, since you already paid tax on the way in. Earnings are the gated piece: take them before age 59½ or before the account’s five-year clock has run, and they lose tax-free treatment; gains come out as ordinary income, with a 10% penalty if you’re under 59½.
3. Required Minimum Distributions (RMDs) apply to Traditional IRAs starting at age 73. Roth IRAs have no RMDs during the original owner’s lifetime.

Rolling over an old 401(k)

When you leave a job, rolling your old 401(k) into a Rollover IRA gives you broader investment choices and (often) lower fees. The 401(k) guide covers the same move from the employer-plan side. The two ways to do it:

• Direct rollover — your old plan sends the money straight to your new IRA. No taxes withheld, no 60-day clock.
• Indirect rollover — they cut you a check; you have 60 days to deposit it into the new IRA. 20% gets withheld for tax, which you have to make up out of pocket to roll over the full amount. Example: on a $10,000 balance, the plan withholds $2,000 and hands you $8,000, but to avoid tax and penalty on that withheld $2,000 you have to deposit the full $10,000 into the new IRA, covering the missing $2,000 from other savings. You get the $2,000 back as a refund when you file taxes.

Always do the direct rollover unless you have a very specific reason not to.

Back at the screen

You came here frozen at a five-item dropdown. Now the menu reads differently: the Roth is your account, the other four are labels for situations you’ll recognize if you ever land in them, and the decision is smaller than it looked. Open the Roth, contribute what you can, and place a buy order so the money is invested, not sitting in cash.

From here, two next steps: the Roth vs. Traditional guide if you want to pressure-test the Roth choice against your own bracket, and the compound growth visualizer to see what your contribution becomes by retirement.