What is an IRA and How Does it Work? — Individual Retirement Accounts (IRAs)

A way to help you save more for retirement and get tax advantages while you're working.

Last updated October 8, 2025

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An IRA, or Individual Retirement Account, is a tax-advantaged retirement savings account that offers tax benefits, including income tax-free or tax-deferred growth - which can help your retirement savings grow faster than it would in a traditional savings or investment account.

IRAs are similar to employer-sponsored 401(k)s, but you open, fund and manage it on your own. An IRA can be used to supplement your employer retirement savings plan, or – if you are self-employed – IRAs can be your main retirement savings vehicle.

  • Who is an IRA for?

    An IRA can be a good retirement investment for anyone who qualifies — your eligibility depends on having earned income and may be affected by your filing status. Think you’ll be in a lower income bracket when you retire? A traditional IRA can help you save now with tax-deductible contributions. If you expect to have higher income in retirement, consider a Roth IRA for income tax-free growth potential.

  • How does an IRA work?

    When you contribute to an IRA, you can choose to invest your money in the market or put it in an interest-paying account. As that money grows, it isn't taxed, so your savings could grow faster. The specific details and tax benefits of your IRA depend on if you choose a Traditional or Roth IRA.

  • What are the benefits of an IRA?

    Depending on your financial situation and the type of IRA you choose, contributions you make now can lower your taxable income, helping you save at tax time. And funds in your IRA grow and compound faster because they aren't taxed. In addition to tax advantages, IRAs offer investment flexibility, and can supplement an employer-sponsored retirement plan or serve as your primary retirement plan.

If you think you’ll be in a lower tax bracket in retirement, a traditional IRA can save you money. How? A traditional IRA lets you defer income taxes now and pay them – possibly at a lower rate - when you withdraw the money for your retirement. Plus, traditional IRAs benefit from tax-deferred growth, and most allow penalty-free withdrawals for certain expenditures such as medical expenses and college tuition.

When you contribute to a Roth IRA, you will have to pay income taxes on the money you contribute today, but you'll benefit from having your Roth IRA contributions grow without being taxed. And, one of the key advantages of Roth IRAs is the ability to make tax-free withdrawals in retirement (when certain conditions are met) which can significantly reduce your tax burden in retirement. If you intend to contribute large sums or think you will be in a higher tax bracket after retirement, a Roth IRA may help you save more money in the long run.

A Rollover IRA is a retirement account funded by money “rolled over” from an employer-sponsored 401(k), 403 (b), 457 (b), or pension plan. Once opened, you can make additional contributions, just as you would to the other kinds of IRA accounts.

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An Individual Retirement Account (IRA) is a self-funded and self-managed type of investment account that can help you accumulate more wealth for your retirement than you might with a traditional savings or investment account. IRAs benefits include tax advantages (including tax-deferred or income tax-free growth), flexibility, and suitability for a wide range of savers, including small business owners. The three main types of IRAs are Traditional, Roth, and Rollover. Speak to a financial professional to learn which may be appropriate for you.

Yes. IRAs are a type of investment account opened, funded and managed by individuals, as opposed to employers. You can open an IRA at a financial institution, such as a bank, credit union, or brokerage. To do so, you must have earned income, which means income from work; income from interest, dividends, Social Security, or child support does not qualify. Many people use IRAs to supplement their employer-sponsored plan, while others — including self-employed individuals — rely on IRAs as their sole savings vehicle for retirement.

401Ks are employer-sponsored retirement plans that typically have higher annual contribution limits than IRAs. An IRA (or Individual Retirement Account) is opened, funded and managed by an individual, independent of any employer involvement. IRAs generally offer a broader range of investment choices compared to most employer-sponsored plans, giving individuals more flexibility in managing their retirement funds. Both 401(k)s and IRAs have annual contribution limits set by the IRS, which are important to consider for maximizing retirement savings and strategic planning.

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This material is intended for general public use. By providing this content, The Guardian Life Insurance Company of America, and their affiliates and subsidiaries are not undertaking to provide advice or recommendations for any specific individual or situation, or to otherwise act in a fiduciary capacity. Please contact a financial representative for guidance and information that is specific to your individual situation. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

1 2025 IRA Contribution Limits, Internal Revenue Service, November 13, 2024.

2 Guardian’s 13th Annual Workplace Benefits Study, 2024.

3 Guardian’s 12th Annual Workplace Benefits Study, 2023.