IRA (Individual Retirement Account).
In plain English
An IRA, or individual retirement account, is a retirement account you set up yourself at a brokerage or bank, apart from an employer's 401(k). It comes in two main types: a traditional IRA, funded with pre-tax money that is taxed when you withdraw, and a Roth IRA, funded with after-tax money that comes out tax-free in retirement. Annual contributions are capped, and Roth contributions phase out at higher incomes. An IRA is a container for investments, not an investment itself; you choose what it holds.
01Why it matters
An IRA is one of the main ways to save for retirement with tax advantages, and choosing traditional versus Roth decides when you pay the tax on that money.
02The math, step by step
You open a Roth IRA and contribute 6,000 dollars of after-tax money, invest it in an index fund, and decades later withdraw it and its growth completely tax-free in retirement.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
An IRA is NOT a 401(k). A 401(k) is offered through an employer with higher contribution limits and possible matching; an IRA you open yourself, with lower limits but more investment choice.
◆The figures, verified
Figures on this page verified within the last 68 days.
Tap a figure to see its source, when we last checked it, and what it used to be.
$7,500
- Last checked
- Jun 20, 2026
- What changed it
- IRS annual inflation adjustment (Notice 2025-67)
- What it was before
- $7,0002025
04Receipts
Every figure on this page is sourced to a primary document. Tap to open the original.
Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice