Every tax-advantaged account trades a tax break for rules in the Internal Revenue Code (IRC). Those rules set who may contribute, how much, and when money may come out.
An individual retirement account (IRA) is a tax-advantaged account a person opens alone, apart from any employer. Contributions require earned income, such as wages, salary, commissions or self-employment income. Dividends, interest and rent don't count.
For 2026, the IRA contribution limit is $7,500 plus a $1,100 catch-up at age 50 or older, for $8,600, capped at earned income. One limit covers traditional and Roth IRAs combined. A spouse with little or no pay can fund a spousal IRA from the working spouse's income if the couple files jointly. Contributions are allowed until the tax-filing deadline, without extensions, so 2026 money can go in until April 2027. Excess contributions bear a 6% excise tax (IRC 4973) for each year they remain.
The IRA tax break is aimed at savers without a workplace plan and at middle incomes, so it phases out as income rises.
Common mistakes
- Using the old 50% penalty for a missed RMD. The tax is now 25%, or 10% if corrected in time.
- Starting age-75 RMDs in 2033. Age 75 applies to people born 1960 or later, so the first fall in 2035.
- Applying 20% withholding to a trustee-to-trustee transfer. It hits only employer-plan payouts made to the participant.
Bottom line
- IRA 2026: $7,500 plus $1,100 at 50 or older, capped at earned income and due by the filing deadline.
- Phase-outs: the deduction runs $81,000 to $91,000 single and $129,000 to $149,000 joint, and Roth eligibility $153,000 to $168,000 single and $242,000 to $252,000 joint.
- The 10% additional tax hits withdrawals before 59½; age-55 separation is plan-only, first home ($10,000) and education are IRA-only; SIMPLE first two years is 25%; governmental 457(b) payouts are exempt except rolled-in money.
- RMDs start at 73 (born 1951 to 1958) or 75 (born 1960 or later, first in 2035); the first may wait to April 1; a missed RMD costs 25%, or 10% if corrected; Roth IRAs and employer-plan Roth accounts have...
Exam shortcut
Read every retirement stem in this order: account type, client's age, who receives the money, how it moves. Then hunt for the mismatch. A check payable to the participant from a 401(k) signals 20% withholding. A trustee-to-trustee move signals no withholding and no yearly limit. An age-55 answer on an IRA is wrong, and so is a first-home answer on a 401(k). Born 1960 or later means 75.
The full lesson (about 3,707 words, 25 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- B7
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