Perhaps you've heard about individual retirement accounts (IRAs) but know little about what they are or how they can help you reach your retirement goals. To get you started, let's take a look at four basic facts about IRAs.

An IRA is a long-term savings plan that is designed to help working people save for retirement. Its tax benefits are similar to those of an employer-sponsored retirement plan such as a 401(k) or 403(b.

If you're self-employed or a freelancer, or if your employer doesn't offer a 401(k), the IRA is your best option for saving toward retirement while reducing your taxable income. If you have access to both a 401(k) and an IRA, it's a good idea to save in both types of plans to diversify your investments.

You can choose from a huge variety of IRAs from almost any bank or brokerage. Unlike in a company-sponsored 401(k), you can invest in almost anythin

1. IRA Limits

For 2022, the Internal Revenue Service allows you to contribute as much as $6,000 if you're younger than age 50 and $7,000 per year if you're 50 or older. For 2023, the IRS allows you to contribute up to $6,500 (or $7,500 if you're age 50 or older).

You must have earned income to contribute to an IRA. That can include a spouse's income if you’re married and file jointly.

2. Types of IRAs

There are two primary different types of IRAs: traditional and Roth. The traditional IRA doesn’t require that you pay taxes on your gains until you start taking required minimAs of Jan. 1, 2023, the age at which you must begin taking RMDs was raised to 73 from 72.um distributions (RMDs)

As of Jan. 1, 2023, the age at which you must begin taking RMDs was raised to 73 from 72.

Because the money has not been taxed (yet), the traditional IRA keeps more money in your account over time, and that allows the money to compound at a faster rate.

The Roth IRA requires that you pay taxes now, at your current tax rate. This allows your earnings to grow tax-free. If you anticipate being in a higher tax bracket in the future, the Roth is probably your best choice.

Aside from those two popular choices, there are many other types of IRAs including:

• SEP IRAs, which allow employers (usually small businesses or self-employed individuals) to make retirement contributions.
• SIMPLE IRAs, which are designed to be offered by small businesses.
• Self-directed IRAs, which are very similar to traditional or Roth IRAs except there are limits to the investment options.
• Important:If you earn above a certain amount, you cannot contribute to a Roth IRA. The limits are revised yearly.

3. IRA Eligibility

With the traditional IRA, the deductions for your contribution amounts are limited if you're also covered by an employer-sponsored plan.

Full Deduction Allowed

For 2022, individual taxpayers earning $68,000 or less can take a full deduction. Married couples earning less than $109,000 can make the full deduction.