What are the pros and cons of an IRA?

The benefits of an IRA include tax-deferred or tax-free growth on your contributions and access to a wide variety of investment options. Drawbacks include an early withdrawal penalty (with some exceptions) if you need to take out money before age 59 1/2 and annual contribution limits.

How much tax is on a $50,000 IRA withdrawal?

The taxes you pay on a $50,000 IRA withdrawal depend on your tax bracket at the time of the withdrawal and the type of IRA you have. With a Roth IRA, you can withdraw money tax-free starting at age 59 1/2. With a traditional IRA, withdrawals are taxed as ordinary income.

Is it better to have a 401(k) or an IRA?

IRAs and 401(k)s each have advantages, and neither is necessarily better than the other. IRAs offer far more investment options and some exceptions to early withdrawal penalties that 401(k)s don't have. But 401(k)s have higher contribution limits, and many employers provide a 401(k) match to employees. If you have both options available, you may want to contribute to a 401(k) and an IRA.

Why would anyone put money into an IRA?

Putting money into an IRA allows you to build a nest egg for retirement while saving on taxes. Traditional IRA contributions are tax-deductible in the current year, reducing your tax liability. Roth IRA contributions aren't tax-deductible, but once you reach age 59 1/2, you can make tax-free Roth IRA withdrawals.

Bars

Understand the tax deductions and other benefits for the 2025 and 2026 tax years.

By Lyle Daly – Updated Feb 6, 2026 at 11:54 AM EST | Fact-checked by Margo Winton Parodi

Key Points

Traditional IRA contributions may reduce taxable income if eligibility criteria are met.
IRAs shield investment gains like dividends and profits from annual taxes.
IRAs offer broader investment choices than 401(k) plans.

A traditional IRA, which stands for "individual retirement account," is a tax-advantaged way to save for retirement. The benefits of an IRA include tax-deductible contributions and tax-deferred growth of investments.

Depending on your situation, the features of a traditional IRA might be more valuable to you than the benefits of the alternative, a Roth IRA. To help you decide, this guide explains the benefits of IRA investing and traditional IRAs in particular.

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Data source: IRS.
Tax Filing Status in 2025	Your 2025 AGI Must Be Lower Than This for a Full Deduction	Your 2025 AGI Must Be Lower Than This for a Partial Deduction
Single or head of household	$79,000	$89,000
Married filing jointly	$126,000	$146,000
Married filing separately	$0	$10,000

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For 2026 contribution and deduction purposes, here are the adjusted gross income (AGI) thresholds:

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Data source: IRS.
Tax Filing Status in 2026	Your 2026 AGI Must Be Lower Than This for a Full Deduction	Your 2026 AGI Must Be Lower Than This for a Partial Deduction
Single or head of household	$81,000	$91,000
Married filing jointly	$129,000	$149,000
Married filing separately	$0	$10,000

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If you're married and your spouse has an employer-sponsored retirement plan, but you don't, the 2025 AGI limits are $236,000 for a full deduction and $246,000 for a partial deduction, assuming you file a joint tax return. For the 2026 tax year, these AGI thresholds are $242,000 and $252,000, respectively.

The potential downside is that while your traditional IRA contributions can be tax-deductible, withdrawals from a traditional IRA are considered taxable income at whatever your then-current marginal tax rate ends up being. With Roth IRAs, contributions aren't tax-deductible, but withdrawals in retirement (after age 59 1/2) are tax-free.

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FAQs

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About the Author

Lyle Daly is a contributing Motley Fool stock market analyst covering information technology and cryptocurrency. Lyle has been a contributor at the financial services company since 2018. His work has been featured on USA Today, Yahoo Finance, MSN, Fox Business, and Nasdaq. Before joining The Motley Fool, he wrote for financial brands including Intuit.

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