Individual Retirement Accounts (IRAs)
Shifting from employer-sponsored plans to individual accounts, IRAs are the most widely available retirement savings vehicles. Understanding the differences between Traditional and Roth IRAs (and their income-based phase-outs) is essential for the Series 7.
Traditional IRA (Internal Revenue Code Section 219)
Contribution Rules
- Contribution limit (2026): $7,500 (under age 50); $8,600 (age 50+, includes $1,100 catch-up)
- Contributions may be tax-deductible depending on income and whether covered by an employer plan
- Earnings grow tax-deferred
- Distributions taxed as ordinary income
- Must have earned income (wages, self-employment income) at least equal to the contribution amount
- No age limit for contributions (SECURE Act eliminated the age 70-1/2 limit)
Traditional IRA Deduction Phase-Outs (2026)
Whether you can deduct your traditional IRA contribution depends on your filing status, income, and whether you (or your spouse) participate in an employer plan:
| Filing Status | Phase-Out Range (Modified Adjusted Gross Income) |
|---|---|
| Single/Head of Household (active participant in employer plan) | $81,000 - $91,000 |
| Married Filing Jointly (contributor is active participant) | $129,000 - $149,000 |
| Married Filing Jointly (contributor NOT active, spouse IS) | $242,000 - $252,000 |
| Married Filing Separately (active participant) | $0 - $10,000 |
- If neither spouse is an active participant in an employer plan, the full deduction is available at any income level
- You can always contribute to a traditional IRA (assuming earned income) - the question is whether the contribution is deductible
- Married filing separately taxpayers who lived apart from their spouse for the entire tax year may use the Single / Head of Household phase-out range; otherwise the deduction phases out between $0 and $10,000 of MAGI
- Above the phase-out ceiling you can still make a non-deductible contribution (tracked on Form 8606) even though no deduction is available
Exam Tip: Gotchas
Anyone with earned income can contribute to a traditional IRA. The deductibility depends on income and employer plan participation.
Roth IRA
Contribution Rules
- Contribution limit (2026): Same as traditional IRA - $7,500 / $8,600 with catch-up
- Contributions are made with after-tax dollars (never deductible)
- Qualified distributions are tax-free
- No required minimum distributions (RMDs) during the owner's lifetime
Qualified Distribution Requirements
A Roth IRA distribution is "qualified" (tax-free) only if both conditions are met:
- The 5-year holding period has been satisfied (measured from January 1 of the first tax year a Roth contribution was made)
- A triggering event has occurred:
- Age 59-1/2
- Death
- Disability
- First-time home purchase (up to $10,000 lifetime)
Exam Tip: Gotchas
- The 5-year rule for Roth qualified distributions starts from January 1 of the first year ANY Roth contribution was made, not from each individual contribution.
- No RMDs for Roth IRAs during the owner's lifetime (SECURE 2.0 also eliminated RMDs for Roth 401(k)s starting 2024).
Roth IRA Contribution Phase-Outs (2026)
Unlike traditional IRAs (where anyone can contribute but deductibility varies), Roth IRAs have income limits on contributions:
| Filing Status | Phase-Out Range (MAGI) |
|---|---|
| Single/Head of Household | $153,000 - $168,000 |
| Married Filing Jointly | $242,000 - $252,000 |
| Married Filing Separately | $0 - $10,000 |
Exam Tip: Gotchas
Roth IRA contributions have income limits. High earners may be locked out of direct Roth contributions entirely.
Traditional vs. Roth IRA Comparison
| Feature | Traditional IRA | Roth IRA |
|---|---|---|
| Contributions | Pre-tax (if deductible) | After-tax |
| Tax-deferred growth | Yes | Yes |
| Qualified distributions | Taxed as ordinary income | Tax-free |
| Income limits on contributions | No (deductibility limited) | Yes |
| RMDs during owner's lifetime | Yes (age 73) | No |
| Age limit for contributions | None | None |
| 5-year rule | N/A | Required for tax-free withdrawal |
Permissible IRA Investments
Allowed:
- Stocks, bonds, mutual funds, ETFs
- CDs, money market funds, government securities
- Certain precious metals (gold, silver, platinum, palladium meeting purity standards)
- Real estate (via self-directed IRA)
Prohibited:
- Life insurance - never permitted in an IRA
- Collectibles - artwork, antiques, gems, stamps, rugs, alcoholic beverages, most coins
- S-corporation stock
Exam Tip: Gotchas
Life insurance is NEVER a permissible IRA investment. Collectibles (art, rugs, antiques, gems, stamps, alcoholic beverages, most coins) are also prohibited. However, certain U.S. gold, silver, and platinum coins and bullion meeting fineness standards ARE permitted.