Working Americans putting money aside for their retirement years often look at Social Security and worry about a couple of major concerns.
One is that average Social Security monthly paychecks are calculated to be barely above the poverty line, so they alone will not be enough to live on after one’s career, personal finance bestselling author Dave Ramsey explains.
Another point of uncertainty is whether Social Security benefits will decrease from their expected amounts because its trust funds, without legislative intervention, are expected to run out of money in 2034, according to the Social Security Administration.
In my years reporting on retirement planning, it’s clear that many workers use employer-sponsored 401(k) plans to help with retirement income and they have a functional understanding of how they work.
Given this background, Ramsey warns people about the importance of learning more about Individual Retirement Accounts (IRAs) — and specifically, two types.
An IRA is a personal savings account that offers special tax benefits when people put money aside for retirement.
The money invested in an IRA can grow in one of two ways: tax‑deferred or tax‑free. Those terms describe when taxes are paid, and they work differently depending on whether the account is a Traditional IRA or a Roth IRA.
“There are some serious differences when it comes to traditional and Roth IRAs, and those differences can have a major impact on how much taxes you pay now and in retirement,” Ramsey warned.
AARP, the advocacy group for Americans over 50, emphasizes the importance of paying attention to how IRA eligibility rules are adjusted each year for inflation.
“Those adjustments can make a big difference in who can contribute to a Roth IRA, and who can deduct contributions to a traditional IRA from their taxable income,” AARP wrote.
Dave Ramsey raises red flag on IRAs
Ramsey emphasizes both what traditional IRAs and Roth IRAs have in common and how they are different, but first he flags a major caution on making a smart personal decision about which IRA type to use.
“Choosing the right IRA is important because it can save you thousands in taxes when you retire,” Ramsey wrote.
First, let’s take a look at how Ramsey explains their similarities.
“You and your spouse can each have an IRA, as long as one of you has an earned income and you file a joint tax return,” Ramsey wrote. “You can contribute up to $7,500 ($8,600 if you’re age 50 or older by the end of the year), or an amount equal to your income for the year if it was less than the contribution limit.”
“You’ll have to pay taxes and an additional 10% penalty on withdrawals made before you turn 59 1/2 (aka early withdrawals),” he continued. “You can contribute to an IRA any time during the year or before you file your tax return the following year.”
Ramsey explains traditional IRA, Roth IRA differences
There are different limits, rules and regulations for traditional IRAs and Roth IRAs. Ramsey outlines major points below:
- In most cases, contributions to a Traditional IRA are tax deductible.
- A Traditional IRA has no annual income limits that restrict who can contribute.
- A Traditional IRA requires you to begin taking annual withdrawals after you turn 73.
- Withdrawals from a Traditional IRA in retirement are taxed as income.
- Contributions to a Roth IRA are not tax deductible.
- For Roth IRAs in 2026, you may contribute up to the annual limit if your income is less than $153,000 as a single filer or less than $242,000 as a married couple filing jointly.
- A Roth IRA does not require withdrawals during your lifetime if you are the original owner.
- Qualified withdrawals from a Roth IRA in retirement are not taxed.
(Source: Ramsey Solutions)
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AARP explains Roth IRA contribution limits
There is one key catch, AARP emphasizes, to one’s eligibility to contribute to a Roth IRA.
“Your ability to make contributions to a Roth IRA is limited by your federal income tax filing status and your modified adjusted gross income (MAGI), which is your adjusted gross income on your 1040 or 1040-SR tax form minus certain deductions, such as student loan interest,” AARP wrote.
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Single filers and heads of household can make a full Roth IRA contribution in 2026 if their MAGI is $153,000 or less, and they qualify for a partial contribution if their income falls between $153,001 and $167,999, according to AARP. They cannot contribute at all once their income reaches $168,000 or more.
Married couples filing jointly or qualifying widow(er)s can make a full Roth IRA contribution in 2026 if their MAGI is $242,000 or less, and they qualify for a partial contribution if their income falls between $242,001 and $251,999. They are not eligible to contribute once their income reaches $252,000 or more.
Married individuals filing separately can make only a partial Roth IRA contribution in 2026 if their MAGI is below $10,000, AARP also explains. They cannot contribute at all once their income reaches $10,000 or more.
Related: Fidelity sounds alarm on Social Security, 401(k)s, IRAs
