Why would someone use an IRA?
- Ben Clarke
- 3 days ago
- 2 min read
Not personalized financial advice - your money, your choice
1,974.
That is the number of Alex Rodriguez’s career RBIs. It’s also the year President Gerald Ford signed IRAs into law.
IRAs solved two critical retirement problems:
Accessibility: Workers without pensions finally gained a tax-advantaged way to save independently.
Portability: Employees could now roll over savings when changing jobs, keeping assets tax-deferred.
Before 1974, workers often left a trail of small accounts at former employers. Assets were easily lost or fragmented. IRAs changed that. They allowed those without 401(k)s to build wealth, save for retirement, and those with 401(k)s to save even more.
Today, an IRA is arguably the best tool for maintaining custody of assets through layoffs or career shifts.
While the original 1974 IRA was "Traditional," the Roth IRA arrived in 1997 to give savers a choice:
Traditional IRA: Tax break now.
Contributions may be tax-deductible today.
Pay ordinary income tax on withdrawals later.
Roth IRA: Tax break later.
Contribute after-tax dollars today (no immediate deduction).
Qualified withdrawals in retirement are 100% tax-free.
The verdict? Most people who choose Traditional think that their tax rate will be lower in retirement. Those who choose to prioritize Roth if they expect to be in a higher tax bracket later, or if they want the flexibility to withdraw contributions at any time without penalty (think - buying a house).
Feature | Traditional IRA | Roth IRA |
Tax Break | Upfront (deductible) | In Retirement (tax-free) |
Income Limits | None to contribute | Limits apply for eligibility |
RMDs | Required at age 73 | None during one’s lifetime |
Withdrawals | Earnings & contributions taxed | Contributions always tax-free |
Vanguard's IRA Comparison Tool can help determine which best fits based on current tax brackets.
For those who want to compare the two options in depth, these articles are very helpful to help understand tax benefits, contribution rules, and withdrawal regulations:
Roth IRA vs Traditional IRA - Rules and Tax Benefits (Vanguard)
Which IRA is Right for Me? (MissionSquare Retirement)
The IRS recently increased these limits to help savers keep pace with inflation:
Feature | 2025 Tax Year Limit | 2026 Tax Year Limit |
Standard (Under Age 50) | $7,000 | $7,500 |
Catch-up (Age 50+) | $8,000 | $8,600 |
Note: It is allowed to contribute to both a Traditional and Roth IRA, but the combined total cannot exceed these annual limits. It is also allowed to contribute to the account through April 15th of the following year (e.g. contributed $5k in 2025, can contribute $2k before April 15, 2026 towards the 2025 tax year limit)
If this helped you understand why IRAs can be helpful tools, please consider subscribing to my YouTube channel or newsletter! I love writing these articles, and I also love hearing from the people who read them.
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