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What is an IRA?

An individual retirement account (IRA) allows you to save money for retirement in a tax-advantaged way.

An IRA is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis. The 3 main types of IRAs each have different advantages:

Traditional IRA - You make contributions with money you may be able to deduct on your tax return, and any earnings can potentially grow tax-deferred until you withdraw them in retirement.1 Many retirees find themselves in a lower tax bracket than they were in pre-retirement, so the tax-deferral means the money may be taxed at a lower rate.2

Roth IRA - You make contributions with money you've already paid taxes on (after-tax), and your money may potentially grow tax-free, with tax-free withdrawals in retirement, provided that certain conditions are met.3

Rollover IRA - You contribute money "rolled over" from a qualified retirement plan into this traditional IRA. Rollovers involve moving eligible assets from an employer-sponsored plan, such as a 401(k) or 403(b), into an IRA.

Whether you choose a traditional or Roth IRA, the tax benefits allow your savings to potentially grow, or compound, more quickly than in a taxable account. Our Account Selector can help you determine an appropriate option.

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Why invest in an IRA?

Fidelity estimates that you may need 55%-80% of your pre-retirement income in retirement. An employer-sponsored savings plan, such as a 401(k), might not be enough to accumulate the savings you need depending on your goals, what you have previously contributed, and how soon you plan to retire. Fortunately, you can contribute to both a 401(k) and an IRA. A Fidelity IRA can help you:

  • Supplement your current savings in your employer-sponsored retirement plan.
  • Gain access to a potentially wider range of investment choices than your employer-sponsored plan.
  • Take advantage of potential tax-deferred or tax-free growth.

You should try to contribute the maximum amount to your IRA each year to get the most out of these savings. Be sure to monitor your investments and make adjustments as needed, especially as retirement nears and your goals change.

Answer a few questions in the IRA Contribution Calculator to find out how much you're eligible to contribute and how much you might be able to deduct on your taxes.

Is an IRA right for you?

We can help you decide whether you might want a traditional, Roth, or rollover IRA.

Compare IRAs

More to explore

Contributing to an IRA

To get tax-advantaged growth from your IRA contributions, remember to do 3 things: contribute what you can, invest your contribution, and set up automatic investments.

Investing involves risk, including risk of loss.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

 1.

A distribution from a Traditional IRA is penalty-free provided certain conditions or circumstances are applicable: age 59 1/2; qualified first-time homebuyer (up to $10,000); birth or adoption expense (up to $5,000 per child); emergency expense (up to $1000 per calendar year); qualified higher education expenses; death, terminal illness or disablility; health insurance premiums (if you are unemployed); some unreimbursed medical expenses; domestic abuse (up to $10,000); substantially equal period payments; Qualfied Federally Declared Disaster Distributions or tax levy.

 2.

For a traditional IRA, full deductibility of a 2023 contribution is available to covered individuals whose 2023 Modified Adjusted Gross Income (MAGI) is $116,000 or less (joint) and $73,000 or less (single); partial deductibility for MAGI up to $136,000 (joint) and $83,000 (single). In addition, full deductibility of a contribution is available for non-covered individuals whose spouse is covered by an employer sponsored plan for joint filers with a MAGI of $218,000 or less in 2023; and partial deductibility for MAGI up to $228,000. If neither you nor your spouse (if any) is a participant in a workplace plan, then your traditional IRA contribution is always tax deductible, regardless of your income.

For 2024, full deductibility of a contribution is available to covered individuals whose 2024 Modified Adjusted Gross Income (MAGI) is $123,000 or less (joint) and $77,000 or less (single); partial deductibility for MAGI up to $143,000 (joint) and $87,000 (single). In addition, full deductibility of a contribution is available for non-covered individuals whose spouse is covered by an employer sponsored plan for joint filers with a MAGI of $230,000 or less in 2024; and partial deductibility for MAGI up to $240,000. If neither you nor your spouse (if any) is a participant in a workplace plan, then your traditional IRA contribution is always tax deductible, regardless of your income.

 3.

For a distribution to be considered qualified, the 5-year aging requirement has to be satisfied, and you must be age 59½ or older or meet one of several exemptions (disability, qualified first-time home purchase, or death among them).

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