A 408(a) plan is the Internal Revenue Code’s formal name for what almost everyone calls a Traditional IRA. Section 408(a) of the code sets out how the account has to be structured, what can go into it, and how the money is taxed on the way out. For 2026, you can contribute up to $7,500, or $8,600 if you are 50 or older, and those contributions may be fully deductible, partly deductible, or not deductible at all depending on your income and whether you have a retirement plan at work.1Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 A separate provision, Section 408A, creates the Roth IRA, which shares the contribution cap but flips the tax treatment.
How the Account Has To Be Set Up
To qualify under Section 408(a), an IRA must be a trust or custodial account created in the United States for the exclusive benefit of one individual or that person’s beneficiaries. The written governing document has to meet specific requirements built into the statute itself.2Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
A bank, a federally insured credit union, or an IRS-approved non-bank trustee has to serve as custodian. Your interest in the balance is nonforfeitable, so the institution cannot claw back money that belongs to you. And except for certain pooled investment funds, the custodian is not allowed to mix your IRA assets with anyone else’s property.2Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
How Much You Can Contribute in 2026
The IRS adjusts the contribution cap for inflation each year. For 2026, you can put in $7,500 if you are under 50 and $8,600 if you are 50 or older, using the extra $1,100 catch-up allowance.1Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 That cap applies across all of your Traditional and Roth IRAs combined, not to each account.
You also cannot contribute more than you earned. Compensation for this purpose means wages, salaries, tips, and net self-employment income; it does not include pension payments, investment returns, or rental income.3Office of the Law Revision Counsel. 26 USC 219 – Retirement Savings Earn $4,000 for the year and your limit is $4,000, regardless of the statutory cap.
Spousal Contributions
Married couples filing jointly get extra room. If one spouse has little or no earned income, the working spouse’s compensation can support IRA contributions for both people. Each spouse can contribute up to the full annual limit as long as the couple’s combined taxable compensation on the joint return covers the total.4Internal Revenue Service. Retirement Topics – IRA Contribution Limits
Deadline and Excess Contributions
You have until the tax filing deadline, generally April 15 of the following year, to make a contribution for the prior tax year. A 2026 contribution can still go in during early 2027.5Internal Revenue Service. IRA Year-End Reminders
Put in too much and the IRS charges a 6% excise tax on the excess for every year it sits in the account.6Office of the Law Revision Counsel. 26 USC 4973 – Tax on Excess Contributions to Certain Tax-Favored Accounts and Annuities You can avoid the penalty by withdrawing the excess plus any earnings it generated before your return due date, including extensions. Those withdrawn earnings count as taxable income and may also trigger the 10% early withdrawal penalty if you are under 59½.7Internal Revenue Service. Instructions for Form 5329 (2025)
When Contributions Are Deductible
Whether your Traditional IRA contribution is deductible depends on two things: whether you or your spouse participates in a retirement plan at work, and how much you earn. If neither of you has a workplace plan, contributions are fully deductible at any income level.8Internal Revenue Service. IRA Deduction Limits
If a workplace plan is in the picture, the deduction phases out across a modified adjusted gross income range. The 2026 ranges are:1Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
- Single filer with a workplace plan: $81,000 to $91,000
- Married filing jointly, contributor has a workplace plan: $129,000 to $149,000
- Married filing jointly, contributor has no workplace plan but spouse does: $242,000 to $252,000
- Married filing separately with a workplace plan: $0 to $10,000
Below the low end of your range, you get the full deduction. Above the high end, none. In between, a partial deduction. You can still contribute to a Traditional IRA even when your contribution is nondeductible, though the tax benefit is limited to deferring tax on the earnings rather than the contributions themselves.
The Tax Deal, and How Roth Differs
Investment earnings inside a 408(a) account grow without annual taxation. When a deductible contribution goes in, it lowers your taxable income that year. In exchange, everything you take out in retirement is taxed as ordinary income, both the original contributions and the growth.8Internal Revenue Service. IRA Deduction Limits Tax break now, tax bill later.
A Roth IRA under Section 408A flips that arrangement. Contributions are made with after-tax dollars, so no deduction, but qualified withdrawals in retirement come out free of federal income tax, growth included.9Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs Roth IRAs also skip required minimum distributions during the original owner’s lifetime. If you are looking at a “408(a) plan,” you are looking at the pre-tax version; the Roth lives under its own section.
What a 408(a) Account Cannot Hold or Do
The statute puts two categories of investment off-limits. Life insurance contracts cannot be held in an IRA at all. And buying a collectible inside the account is treated as an immediate taxable distribution equal to the purchase price. Collectibles include artwork, rugs, antiques, gems, stamps, coins, and alcoholic beverages.2Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts Certain U.S.-minted gold, silver, and platinum coins, along with bullion meeting fineness standards, are the narrow exception, and only when the IRA trustee holds the metal in physical possession.
The code also bans “prohibited transactions” between you and your own IRA. You cannot sell property to it, borrow from it, use it as collateral for a personal loan, or buy property from it for your own use.10Office of the Law Revision Counsel. 26 USC 4975 – Tax on Prohibited Transactions Cross that line and the entire IRA can lose its tax-advantaged status and be treated as fully distributed in a single year.
Taking Money Out Before 59½
Withdrawals from a Traditional IRA before age 59½ are generally hit with a 10% additional tax on top of ordinary income tax.11Internal Revenue Service. Topic No. 557, Additional Tax on Early Distributions From Traditional and Roth IRAs Several exceptions let you avoid the 10% penalty. The most commonly used include:
- Higher education expenses for you, your spouse, children, or grandchildren at eligible institutions, covering tuition, fees, books, and room and board.
- A first-time home purchase, up to $10,000 over your lifetime toward buying, building, or rebuilding.
- Emergency personal expenses, a SECURE 2.0 provision allowing one penalty-free withdrawal of up to $1,000 per year for unforeseeable or immediate financial needs, with a three-year repayment window before another can be taken.
- Substantially equal periodic payments, a series of roughly equal withdrawals based on your life expectancy using one of three IRS-approved methods. Once started, the schedule cannot change until the later of five years or when you turn 59½.12Internal Revenue Service. Substantially Equal Periodic Payments
Other exceptions cover disability, unreimbursed medical expenses over a percentage of adjusted gross income, health insurance premiums while unemployed, and IRS levies. The complete list is on the IRS exceptions table.13Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
Required Minimum Distributions
You cannot leave money in a 408(a) account indefinitely. Required Minimum Distributions have to start by April 1 of the year after you turn 73.14Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs After that first one, each RMD is due by December 31. Waiting until April 1 for the first payment means two taxable distributions land in the same calendar year, which can push you into a higher bracket.
The penalty for missing an RMD is a 25% excise tax on the amount you should have taken. Catch the mistake and take the distribution within two years and the penalty drops to 10%.15Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs) Under SECURE 2.0, the starting age is scheduled to rise to 75 beginning in 2033.
Moving Money Between Accounts
There are two ways to move IRA money, and they follow different rules. A trustee-to-trustee transfer, where one custodian sends the funds directly to another, has no tax consequences and no frequency limit. It is the simplest and safest option.16Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
An indirect rollover is trickier. The custodian sends you a check, and you have 60 days to redeposit the money in another IRA. Miss that window and the whole amount becomes a taxable distribution, potentially with the 10% early withdrawal penalty added. You are also limited to one indirect IRA-to-IRA rollover in any 12-month period across all your IRAs combined.16Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions Trustee-to-trustee transfers do not count against that limit.
What Happens When the Owner Dies
The rules for beneficiaries depend on their relationship to the original owner. A surviving spouse has the most options and can roll the inherited IRA into their own IRA, resetting the RMD timeline to their own age.17Internal Revenue Service. Retirement Topics – Beneficiary
Most other individual beneficiaries fall under the 10-year rule, which the SECURE Act introduced for account owners who died in 2020 or later. The entire inherited IRA has to be emptied by the end of the tenth year following the year of death.17Internal Revenue Service. Retirement Topics – Beneficiary There is no annual required amount inside that window, but the old lifetime stretch is gone.
A narrow group of “eligible designated beneficiaries” can still use life-expectancy distributions: minor children of the account owner (until they reach the age of majority), disabled or chronically ill individuals, and beneficiaries no more than 10 years younger than the deceased owner. When a minor child reaches adulthood, the 10-year clock starts for whatever is left.