Tax

What is an IRA — and a Roth IRA?

An IRA — individual retirement account — is an ordinary brokerage account with a tax wrapper around it. For 2026 you can pay in up to $7,500 a year across all your IRAs ($8,600 from age 50). In a traditional IRA the contribution may be tax-deductible and everything is taxed as income when you take it out. In a Roth IRA you pay in money you have already paid tax on, and qualified withdrawals in retirement — growth included — are tax-free. Inside either, there is no capital gains tax and no dividend tax along the way.

Tax is national. This page describes the federal rules in the United States for tax year 2026. Most states add their own income tax on top, so there is never one single US rate. If you live and pay tax in another country, the rules are different — see the flags below.

One red dot: the tax only comes on the day you sell.

How it works

Same investments. You buy the same stocks, ETFs and funds as in any account — the wrapper only changes the tax.
Traditional: tax later. Deduct the contribution now (if your income and workplace plan allow), pay ordinary income tax on withdrawals after 59½. Required withdrawals start at 73.
Roth: tax now, never again. No deduction, but no tax on qualified withdrawals, and no required withdrawals in your lifetime. Contributions (not growth) can be taken out at any time without tax or penalty.
Income limits for Roth. You can only contribute directly if your income is below a limit — see Roth IRA income limits.
Early withdrawals cost. Taking growth out before 59½ generally means income tax plus a 10 % penalty, with a list of exceptions on irs.gov.
Deadline is tax day. You can contribute for 2026 until the April 2027 filing deadline.

The worked example

You put $7,000 into a Roth IRA at 30 and it grows to $56,000 by 65. Withdraw it all: $0 tax. The same $7,000 in an ordinary account, sold at 65 with a $49,000 gain: 15 % capital gains tax = $7,350 federal, plus state tax, plus tax on every dividend along the way.

Figures for 2026 from irs.gov (Rev. Proc. 2025-32 and IR-2025-111), checked September 2026. Your state may tax the same income again. Kiggo does not calculate your tax — your broker reports to you on Form 1099, and the IRS, your state and a tax professional decide.

Kiggo says: An IRA is the same shares in a different box — the box just keeps the IRS out until retirement, or for good.

The typical beginner's mistake

Investing for decades in an ordinary brokerage account while the $7,500 IRA allowance goes unused every year. Unused allowance cannot be carried forward — and for most beginners the Roth is the box the IRS never opens again.

How you see it in Kiggo

Kiggo does not know which account your shares are in — it shows the same numbers either way. In Kiggo's guide for the US, the IRA is the step "choose the account first". Kiggo does not calculate your tax and does not recommend a provider.

Frequently asked questions

What is the IRA contribution limit for 2026?

$7,500, plus a $1,100 catch-up from age 50 ($8,600 in total), across all your traditional and Roth IRAs combined. Source: IRS IR-2025-111.

Can I have both a 401(k) and an IRA?

Yes. The limits are separate. Having a workplace plan can reduce or remove the deduction for a traditional IRA contribution, depending on your income; it does not affect Roth eligibility.

What happens if I contribute too much?

Excess contributions are taxed 6 % per year until removed. Withdraw the excess (and its earnings) before the filing deadline to avoid it.

Kiggo explains — Kiggo does not advise. We never tell you what to buy or sell, and key figures can only be compared between companies in the same industry. The decision is yours. Last updated 2026-09-22.

Written by Claus Frisch, founder of Kiggo. Not an adviser, not a bank — Kiggo explains, you decide.