8 Lies You’ve Been Told About IRAs (And Probably Believed)

Individual Retirement Accounts (IRAs) are an incredibly powerful tool for building wealth and saving for your golden years. Yet despite nearly 65 million Americans having money in an IRA, there are still a lot of myths and misconceptions about how IRAs actually work.

Below, we'll go over eight of the most common lies about IRAs, and the real rules you need to know, to help you separate fact from fiction.

Reality: Traditional IRA withdrawals are taxed as ordinary income. Roth IRA qualified withdrawals are completely tax-free.

To make a qualified withdrawal from your Roth IRA, you must be at least 59½ years old and have opened the account more than five years ago, unless you fall into one of the exceptions for penalty-free early withdrawals.

What's more, Roth IRA contributions (but not earnings) can be withdrawn at any time without taxes or penalties, since you've already paid taxes on this money. This makes Roth IRAs an excellent way to diversify your tax strategy in retirement.

Understanding the differences between traditional and Roth IRAs can save you thousands of dollars annually in retirement.

Reality: Several exceptions allow penalty-free early withdrawals from a traditional IRA, though taxes may still apply.

Withdrawing traditional IRA funds before age 59½ often results in a 10% penalty, but there are several exceptions to this rule.

Penalty-free early withdrawals from your IRA may be allowed for circumstances such as:

• A first-time home purchase (up to $10,000)
• Birth or adoption (up to $5,000)
• Higher education expenses
• Medical costs
• Death or disability

As discussed above, Roth IRAs are even more flexible than traditional IRAs. Because Roth IRAs contain after-tax contributions, these funds can be withdrawn at any time without penalty and used for any purpose.

Reality: Anyone with earned income can contribute to a traditional IRA — income limits only affect the deductibility of contributions.

It's not a question of whether you can contribute to an IRA. What you need to ask yourself is whether or not your traditional IRA contributions are tax-deductible, which depends on your income level and workplace retirement plan.

In 2025, for example, if your filing status is single, your traditional IRA contributions are fully tax-deductible up to a Modified Annual Gross Income (MAGI) of $79,000. Above a MAGI of $89,000, however, the allowed deduction is zero.

For Roth IRAs, income limits do apply: It's $165,000 for single filers and $246,000 for joint filers in 2025. However, the "backdoor" Roth IRA strategy lets high earners contribute to a traditional IRA and then convert those funds into a Roth IRA, effectively sidestepping any restrictions.

Smart Drivers, Smarter Savings.

Compare car insurance rates in Ohio

See if you qualify for a lower rate in less than 2 minutes

Currently Insured?

Yes

No

Multiple Cars?

Yes

No

Homeowner

Yes

No

Age

30-39

• 18-29
• 30-39
• 40-49
• 50-59
• 60-69
• 70-79
• 80+

Compare Quotes

By clicking the button above, I understand and agree that this site uses site visit recording technology (provided by Trusted Form, Jornaya, and Microsoft Clarity) Privacy Policy

Smart Drivers, Smarter Savings.

Great News! We’ve located some excellent quote options just for you.

Where can we send you info and recommendations?

Enter Email

Bundle Home & Auto to Save More?

Yes

No

Active Military?

No

Yes

Compare Quotes

By clicking the button above, I understand and agree that this site uses site visit recording technology (provided by Trusted Form, Jornaya, and Microsoft Clarity) Privacy Policy

Reality: An IRA is an investment account—not just a savings account.

IRAs aren't just conservative savings accounts with a low yield and limited annual returns. They are tax-advantaged accounts that can hold a wide range of investments.

Most IRA providers offer higher-risk investments such as stocks, exchange-traded funds (ETFs), and mutual funds. Of course, lower-risk investments such as certificates of deposit (CDs) and U.S. savings bonds may be better options if you're nearing retirement.

The growth potential of your IRA savings depends on your investment choices, not on the structure of the IRA itself.

Reality: The SECURE 2.0 Act changed Required Minimum Distribution (RMD) rules.

This myth used to be true, but things have changed thanks to the SECURE 2.0 Act of 2022. Required minimum distributions (RMDs) now begin at age 73 (for those born between 1951 and 1959) and age 75 (for those born in 1960 or later).

What's more, Roth IRAs are an exception to this rule: Withdrawals are not required until the account owner has passed away. This makes them an attractive option if you want to delay retirement, or if you want to let your savings continue to grow before passing them on to your heirs.

Reality: You can open multiple IRAs of any type and with different providers.

There's no limit on the number of IRAs you can open. You can have multiple traditional IRAs, Roth IRAs, or a mixture of both.

However, the annual IRA contribution limit applies across all of your IRA accounts combined. In 2025, you can contribute up to $7,000 per year to your IRA accounts (or $8,000 if you're age 50 and over).

In fact, having multiple IRA accounts can help you diversify your investments or tax strategies, or take advantage of different providers' offerings.

Reality: You can contribute to both an IRA and a 401(k) in the same year.

You can still open an IRA if you already have a 401(k). In fact, many people who can afford to do so will contribute to both, subject to income limits and deduction rules.

401(k)s have higher contribution limits than IRAs and often give the benefit of an employer match. IRAs, on the other hand, give you more choice over how and where your money is invested.

Even if you're self-employed, you can still save for retirement in both a 401(k) and an IRA. Solo 401(k)s and SEP (Simplified Employee Pension) IRAs are tax-advantaged accounts specifically designed for self-employed people, such as freelancers and solo entrepreneurs.

Reality: You can keep contributing to an IRA at any age if you have earned income.

Your age or retirement status doesn't limit IRA contributions. Even after you retire, you can still keep contributing to your IRA if you have some form of earned income, which allows your money to compound in a tax-advantaged account.

To keep contributing after retirement, however, your IRA contributions need to come from part-time work or other forms of earned income.

IRAs are a truly flexible tool when saving for retirement; unfortunately, misconceptions about how they work can often lead to surprising financial mistakes and prevent people from taking full advantage.

Debunking these IRA myths is a great way to expand your financial future and maximize your retirement savings potential. To learn more about how IRAs work, consult with a qualified financial advisor for guidance.