Individual Retirement Accounts (IRAs) are one of the most common tools for saving for retirement. Whether you’re building your retirement savings on your own or alongside an employer-sponsored retirement plan, an IRA may offer tax advantages that can help your money grow over time.

IRAs come with contribution limits, withdrawal rules, and eligibility requirements that may affect how the account fits into your retirement strategy. Understanding the advantages and limitations of IRAs can help you determine whether opening an account aligns with your long-term financial goals.

What is an IRA?

An IRA is a tax-advantaged account designed to help individuals save for retirement. An IRA allows contributions to grow while potentially offering tax benefits depending on the type of account selected. 

Traditional and Roth IRAs are the most common types of IRAs. As long as you have earned income, you can typically open an IRA through a bank or financial institution. Many people use IRAs to supplement workplace retirement plans or save for retirement independently. 

Some banks offer IRA CDs, which combine the tax advantages of an IRA with the predictability and fixed interest rate of a certificate of deposit (CD).

How does an IRA work?

An IRA allows you to set aside money for retirement each year. Over time, regular contributions and account earnings can help build retirement savings. To encourage long-term retirement savings, the IRS establishes rules around who can contribute, how much can be contributed annually, and when funds can be withdrawn. Once you reach retirement age, you may begin withdrawing funds from the account, subject to the rules of your specific IRA.

Annual IRA contribution limits.

The IRS establishes annual IRA contribution limits and periodically adjusts them for inflation. For 2026, individuals can contribute up to $7,500 across eligible IRA accounts. Those age 50 and older can make an additional $1,100 catch-up contribution, for a total contribution limit of $8,600. If you contribute more than the annual IRA contribution limit, the excess could be subject to a 6% excise tax for each year it remains in the account.

You can generally make an IRA contribution for a given tax year until the federal income tax filing deadline for that year, not including extensions. When contributing between January 1 and the filing deadline, make sure you identify the tax year to which the contribution should apply.

Withdrawal rules and considerations.

IRAs are designed for long-term retirement savings, which means early withdrawals may be subject to taxes and penalties. If you withdraw funds from an IRA before age 59½, you may be required to pay an additional 10% federal tax unless an exception applies.

The tax treatment of qualified withdrawals can vary depending on whether the funds are held in a Traditional IRA or a Roth IRA, which we’ll discuss later in this article.

IRA CDs.

IRAs can be offered through different types of financial products. One option is an IRA CD, which combines the tax advantages of an IRA with the predictability of a CD. IRA CDs earn a fixed rate of interest for a set term, making them a retirement savings option for individuals who prefer a more predictable approach to growing their savings.

Because IRA CDs are bank deposit products, funds held within an IRA CD at an FDIC-insured bank are insured within applicable limits and ownership categories.

What are the pros and cons of an IRA?

Understanding the benefits and potential drawbacks of IRAs can help you determine whether this type of account aligns with your retirement goals. 

Pros:

• Another way to build retirement savings over time
• Possibility of tax-deferred growth or tax-free qualified withdrawals
• Ability to supplement workplace retirement plans
• Catch-up contributions available for individuals age 50 and older
• Potential tax deductions for eligible Traditional IRA contributions

Cons:

• Early withdrawals may be subject to taxes and penalties
• Annual contribution limits apply across all Traditional and Roth IRAs
• Income may limit Roth IRA contribution eligibility
• Income and workplace retirement coverage may affect deduction eligibility
• No employer matching contributions
• Traditional IRAs are generally subject to required minimum distributions beginning at age 73

Traditional vs. Roth IRA: Which may be right for you?

Choosing between a Traditional IRA and a Roth IRA often depends on your current tax situation, retirement timeline, and long-term financial goals.

Feature	Traditional IRA	Roth IRA
Contributions	Contributions are made with pre-tax income and may be fully or partially tax-deductible depending on income, filing status, and workplace retirement-plan coverage.	Contributions are made with after-tax income and are not deductible. Income limits may affect eligibility to contribute.
Withdrawals	Qualified withdrawals are generally taxed as ordinary income.	Qualified withdrawals are generally tax-free.
Required minimum distributions	Generally required beginning at age 73 under current law.	No required minimum distributions during the account holder’s lifetime.
Who benefits most	Individuals who might expect their income (and taxes) to be the same or lower in retirement.1	Individuals who expect to be in a higher tax bracket in retirement and want tax-free qualified withdrawals.1

You can also have both a Traditional IRA and a Roth IRA, allowing you to combine the potential tax benefits of each account type as part of your overall retirement strategy. For example, a Traditional IRA can help provide tax advantages during your working years, while a Roth IRA can offer tax-free qualified withdrawals in retirement.

When should you open an IRA?

Opening an IRA earlier allows more time for contributions and earnings to grow. Starting retirement savings early also helps reduce the pressure to contribute larger amounts later in life. Regular contributions over time help support long-term retirement savings goals. 

Contributing consistently throughout the year also helps build disciplined savings habits. Depending on the type of IRA selected, contributions can also provide tax advantages during higher-earning years. 

• Before opening an IRA, consider:
• Your current income and tax situation
• Whether you have access to an employer-sponsored retirement plan
• Your expected retirement timeline
• How much access you may need to the funds
• Whether a Traditional or Roth IRA meets your needs

Start saving for retirement by opening an IRA today

Saving for retirement early and consistently may help support your future financial goals. A Popular Bank IRA can provide tax advantages while helping you build long-term retirement savings.

Call our Customer Care Center to learn more about IRA options and retirement savings solutions, or visit one of our nearby branches to speak with a banker and open an IRA CD.