Individual retirement accounts, or IRAs, are popular tax-deferred, long-term investments that offer financial security during retirement.
IRA Overview
An IRA, or individual retirement account, is a type of long-term retirement plan that provides individuals with certain tax advantages while helping them save and invest for retirement.
With IRAs, individuals can invest either pre-tax or post-tax income, depending on the type of IRA, and potentially grow their investments.
Traditional IRAs allow individuals to grow their investments tax-deferred and pay taxes when withdrawing funds at retirement. In contrast, those investing in a Roth IRA contribute post-tax funds and can withdraw the amount tax-free during retirement.
The amount contributed to IRAs can be invested in various ways, depending on an individual's financial goals and risk tolerance.
2025 IRA Contribution and Income Limits
In 2025, the contribution limits for both Roth and traditional IRAs will remain $7,000, the same as in 2024. The catch-up contribution for individuals aged 50 and above will remain $1,000.
Self-employed individuals, small business owners, and freelancers who employ others can contribute to employer-sponsored IRAs.
- A self-employed individual can contribute up to 25% of their net income to an employer-sponsored IRA.
- A small business owner can contribute up to 25% of their income or $70,000, whichever is less.
Individuals contributing to IRAs cannot invest more than their earned income. For example, if you earn $5,000, you cannot invest more than that amount, meaning the maximum limit of $7,000 will not apply to you.
Additionally, income limits determine how much can be contributed to traditional and Roth IRAs.
Roth IRA Limits for 2025
You can invest your after-tax income in Roth IRAs, allowing your contributions to grow tax-free, and you can withdraw funds during retirement without paying taxes.
For 2025, the income phase-out ranges for Roth IRA contributions are as follows:
- Single filers and heads of household: $150,000–$165,000
- Married couples filing jointly: $236,000–$246,000
- Married couples filing separately: $0–$10,000
Traditional IRA Limits for 2025
Contributions to a traditional IRA are tax-deductible in the year of contribution under certain conditions:
- If you or your spouse are covered by a retirement plan at work and file taxes as a married couple filing jointly, the deductions may be phased out or eliminated based on income and filing status.
- If a workplace retirement plan covers neither you nor your spouse, deduction phase-outs do not apply.
The 2025 phase-out income ranges are as follows:
- Single individuals covered by workplace retirement plans: $79,000–$89,000
- Married couples filing jointly: $126,000–$146,000 (for the spouse covered by a workplace retirement plan)
- Married couples filing jointly: $236,000–$246,000 (if a workplace retirement plan does not cover the IRA contributor but their spouse is)
- Married couples filing separately: $0–$10,000 (if covered by a workplace retirement plan)
Types of IRAs
The types of IRAs include:
- Traditional IRAs
- Roth IRAs
- Simplified Employee Pension (SEP) IRAs
- SIMPLE IRAs
- Non-Deductible IRAs
- Spousal IRAs
- Self-Directed IRAs
While individuals can contribute to Roth and traditional IRAs, small business owners and self-employed individuals can benefit from investing in SIMPLE and SEP IRAs.