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 the potential growth of invested assets is tax-deferred, with tax-free withdrawals in retirement, provided that certain conditions are met.3
Rollover IRA—You move money by "rolling over" money from your former employer-sponsored plan, such as a 401(k) or 403(b), tax-free, while keeping your money's tax-deferred status.4
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.
Why have 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. An IRA is a way to supercharge your retirement savings. 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 growth and potential tax-free withdrawals.
You should try to contribute the maximum amount to your IRA each year to get the most out of these savings. Even making small contributions to your IRA over time can help. To make the most of your IRA savings, be sure to invest. The sooner you invest, the more time your money has to potentially grow. 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.