👥 Customer Accounts · Lesson 6 of 8 · 6 min

Traditional and Roth IRAs (Tax Year 2026)

🧾 Two IRAs, same contribution limit, opposite tax deals: pay tax later, or pay it now and never again.

💡 Key idea

Traditional: deduct now, tax later, RMDs at 73. Roth: no deduction, tax-free qualified withdrawals, no lifetime RMDs. 2026 limit $7,500 (+$1,100 at 50+).

🧠 Why it matters

For tax year 2026 the IRA contribution limit is $7,500, plus a $1,100 catch-up at age 50+ (IRS, Nov 2025), from earned income. TRADITIONAL contributions may be deductible; withdrawals are taxed as income. ROTH contributions are never deductible; qualified withdrawals (5-year rule met, and 59½, death, disability or first-home) are tax-free. 2026 Roth eligibility phases out at $153,000–$168,000 MAGI (single) and $242,000–$252,000 (joint). Withdrawals before 59½ generally add a 10% penalty; exceptions include death, disability, first-home purchase (up to $10,000 lifetime) and higher education. RMDs start at 73 (75 for those turning 74 after 2032); Roth owners have none. Rollovers: 60 days, one IRA-to-IRA rollover per 12 months; direct trustee-to-trustee transfers are unlimited.

📈 In the real world

🔄 Mia, a fictional 52-year-old, takes a check from her old IRA to move it to a new firm. She deposits it on day 58, a valid rollover. In 2026 she can contribute up to $8,600 ($7,500 plus the $1,100 catch-up). Next time her rep suggests a direct transfer: no check, no deadline, no 12-month limit.

📌 Takeaways

2026: $7,500 IRA limit, plus $1,100 catch-up at age 50+
Roth: no deduction, tax-free qualified withdrawals, no RMDs for the owner
60-day rollover, once per 12 months; direct transfers are not limited

📖 Terms in this lesson

Traditional IRA: An individual retirement account whose contributions may be deductible depending on income and plan coverage; withdrawals are taxed as ordinary income.

Roth IRA: An IRA funded with after-tax money whose qualified withdrawals, earnings included, are tax-free; eligibility to contribute phases out at higher incomes.

60-day rollover: Moving retirement money by taking it out and redepositing it in another plan or IRA within 60 days.

Required minimum distribution (RMD): Yearly withdrawals required from traditional IRAs and most employer plans, currently starting at age 73; original Roth IRA owners have none.

✅ Test yourself

For tax year 2026, what is the most a 55-year-old can contribute to IRAs?

$8,000
$7,000
$8,600
$7,500

Answer: C · $8,600

The 2026 limit is $7,500 plus a $1,100 catch-up for age 50 and older, for $8,600. $7,000 and $8,000 were the 2025 figures; $7,500 alone omits the catch-up.

Which statement about Roth IRAs is accurate?

Qualified withdrawals are tax-free
Anyone may contribute at any income
Contributions are tax-deductible
Owners face RMDs at age 73

Answer: A · Qualified withdrawals are tax-free

Qualified Roth withdrawals are tax-free. Roth contributions are not deductible, the owner has no lifetime RMDs, and eligibility phases out at higher incomes.

How often may an investor do a 60-day IRA-to-IRA rollover?

As often as the customer wants
Once in any 12-month period
Once every five years
Once per calendar quarter

Answer: B · Once in any 12-month period

IRS rules allow one IRA-to-IRA rollover in any 12-month period across all of a person's IRAs. Direct trustee-to-trustee transfers are not counted, which is why they are preferred.

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