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IRS Tax Tips Sept. 16, 2025
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Issue Number: Tax Tip 2025-62
*Individual retirement accounts offer benefits now and in the future*
Planning for retirement may seem daunting, but it’s important to start early. Individual retirement accounts provide tax incentives for people to make investments towards their financial future.
IRAs let earnings grow tax deferred. Individuals pay taxes on investment gains only when they make withdrawals. Depositors may be able to claim a deduction [ [link removed] ] on their individual federal income tax return for the amount they contributed to an IRA.
Here are some highlights for the many types of IRAs:
*Traditional IRA*
* Most common type of IRA and generally, the money in a traditional IRA [ [link removed] ] isn't taxed until it's withdrawn
* There are annual limits to contributions [ [link removed] ] depending on the person's age and the type of IRA
* When planning when to withdraw money from an IRA, taxpayers should know:
* They may face a 10% penalty and a tax bill if they withdraw money before age 59½, unless they qualify for an exception [ [link removed] ]
* Usually, they must start taking withdrawals [ [link removed] ] from the IRA when they reach age 73, age 72 if they turned 72 in 2022. For tax years 2019 and earlier, that age was 70½
* Special distribution rules apply for IRA beneficiaries [ [link removed] ]
*Roth IRA*
Same rules as a traditional IRA, but there are differences:
* Contributions are made with after-tax funds, and a taxpayer can't deduct contributions to a Roth IRA
* Qualified distributions [ [link removed] ] are tax free
* Don't require withdrawals until after the death of the owner
*Other types of IRAs*
* *Simplified employee pension* – A SEP IRA [ [link removed] ] is set up by an employer. The employer makes contributions directly to an IRA set up for each employee.
* *Savings incentive match plan for employees* – A SIMPLE IRA [ [link removed] ]allows the employer and employees to contribute to an IRA set up for each employee. It is suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.
* *Payroll deduction IRA [ [link removed] ]* – Employees set up a traditional or a Roth IRA with a financial institution and authorize a payroll deduction agreement with their employer.
*More information*:
* Publication 590-A, Contributions to Individual Retirement Arrangements [ [link removed] ]
* Publication 590-B, Distributions from Individual Retirement Arrangements [ [link removed] ]
* Topic No. 557, Additional Tax on Early Distributions from Traditional and Roth IRAs [ [link removed] ]
* Topic No. 413, Rollovers from retirement plans [ [link removed] ]
* Topic No. 451, Individual retirement arrangements [ [link removed] ]
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