What Is a 408A IRA? Contributions, Withdrawals, and RMDs

A 408(a) IRA is the Internal Revenue Code’s formal name for a Traditional IRA — a trust or custodial retirement account under Section 408(a) of the Code that lets you contribute earned income, grow investments without paying annual tax on gains, and defer income tax until you withdraw the money in retirement.¹ For 2026, you can put in up to $7,500, or $8,600 if you are 50 or older, and depending on your income and whether you have a workplace retirement plan, some or all of that contribution may be tax-deductible.² The tax breaks come with a detailed set of rules covering what you can hold, when you can take money out, and when you must.

Who Can Open and Contribute

You need earned income to contribute. Wages, salaries, commissions, and self-employment income all count. Investment income, rental income, and pension payments do not. Your contribution for any year cannot exceed your total earned income for that year, so someone who earned $3,000 can contribute only $3,000 even though the annual cap is higher.³

There is no age limit. As long as you have earned income, you can keep contributing. A non-working spouse can also fund their own Traditional IRA through a spousal IRA, provided the couple files jointly and the working spouse earns enough to cover both contributions.

Opening the account means signing a written trust or custodial agreement with a qualified financial institution — a bank, brokerage, or insurance company. That institution serves as trustee or custodian and administers the account under federal tax law.¹ The deadline for a given tax year’s contribution is your federal income tax filing deadline, typically April 15 of the following year, not including extensions.⁴

2026 Contribution Limits

For 2026, the maximum annual IRA contribution is $7,500. If you reach age 50 by the end of the year, you can add a $1,100 catch-up, bringing the total to $8,600.⁵ These limits apply across all Traditional and Roth IRAs you own combined. You can split dollars between the two account types however you want, but the total cannot exceed the cap.

Anyone with earned income can contribute up to the limit regardless of income. Income only affects whether the contribution is deductible.

When Your Contribution Is Deductible

Two things determine deductibility: whether you or your spouse participate in a workplace retirement plan like a 401(k), and how much you earn. If neither of you is covered by a workplace plan, every dollar you contribute is fully deductible no matter your income.

When you are covered by a workplace plan, the deduction phases out across a range of Modified Adjusted Gross Income. For 2026:⁶

Single or head of household, covered by a plan: full deduction at MAGI of $81,000 or less, partial deduction from $81,000 to $91,000, no deduction above $91,000.
Married filing jointly, contributor covered by a plan: full deduction at MAGI of $129,000 or less, partial from $129,000 to $149,000, none above $149,000.
Married filing jointly, contributor not covered but spouse is: full deduction at MAGI of $242,000 or less, partial from $242,000 to $252,000, none above $252,000.

Income inside the phase-out range produces a proportional deduction. Someone at the midpoint deducts roughly half the contribution.

Nondeductible Contributions and Form 8606

Contributions you cannot deduct are called nondeductible contributions. You are still allowed to make them; you just do not get the upfront tax break. Growth inside the account is still tax-deferred, which gives nondeductible contributions an edge over a regular taxable account.

Tracking them is critical. Report nondeductible contributions on IRS Form 8606 for each year you make one.⁷ The form establishes your basis — the portion you have already paid tax on. Without it, you will pay tax twice: once when you earned the money and again when you withdraw it. If you have made nondeductible contributions in prior years without filing Form 8606, filing it retroactively is worth the trouble.

What the Account Can Hold

A 408(a) IRA can hold most conventional investments: stocks, bonds, mutual funds, ETFs, certificates of deposit, and similar assets. The statute specifically bars two categories, and the consequences for crossing those lines are severe.

No IRA funds can be invested in life insurance contracts. Buying a collectible inside the account is treated as a taxable distribution equal to the purchase price. Collectibles include artwork, rugs, antiques, gems, stamps, coins, and alcoholic beverages. Certain precious metals are an exception: gold, silver, platinum, and palladium bullion can be held in an IRA if the metal meets minimum fineness standards set by regulated commodities exchanges and is stored by the IRA trustee rather than kept at home.¹ Specific U.S. Mint coins, including American Eagle gold and silver coins, also qualify.

Prohibited Transactions

A prohibited transaction is any deal between your IRA and yourself or certain family members and business entities. Borrowing money from your IRA, using it as collateral, or selling property to it are all examples. The penalty is severe: if a prohibited transaction occurs, the IRA loses its tax-advantaged status as of the first day of that tax year. The entire account balance is treated as a distribution at fair market value, triggering income tax on the full amount, plus the 10% early withdrawal penalty if you are under 59½.¹ One misstep can wipe out the entire account.

How Withdrawals Are Taxed

Money you take out is generally taxed as ordinary income in the year you receive it. That is the flip side of the upfront deduction. The tax applies to both the original deductible contributions and all the earnings that accumulated tax-free inside the account.

If you made nondeductible contributions, the portion of each withdrawal attributable to those contributions comes out tax-free. The IRS uses a pro-rata rule: it divides your total nondeductible basis across all your Traditional IRAs by the total value of all your Traditional IRA balances. That fraction of any distribution is tax-free, and the rest is taxable.⁷ You cannot cherry-pick which dollars come out first. The IRS treats all your Traditional IRAs as one pool for this calculation.

Early Withdrawal Penalty and Exceptions

Withdrawals before age 59½ are hit with a 10% additional tax on top of regular income tax. The penalty applies to the taxable portion of the distribution and is designed to keep IRA money in place for retirement.⁸

The IRS carves out exceptions where you can withdraw early without the 10% hit:⁹

Distributions due to the account owner’s total and permanent disability, or paid to a beneficiary after the owner’s death.
Unreimbursed medical expenses exceeding 7.5% of your adjusted gross income for the year.
Qualified higher education expenses for you, your spouse, or dependents.
Up to $10,000 over your lifetime for a first-time home purchase.
Substantially equal periodic payments calculated using life expectancy tables. Once started, the schedule must continue for five years or until you turn 59½, whichever comes later; modifying the payments early triggers the 10% penalty retroactively on all prior distributions, plus interest.¹⁰
One emergency personal expense withdrawal per year of up to $1,000, available for distributions after December 31, 2023.

Even when the 10% is waived, regular income tax still applies to the taxable portion. The exceptions save you the extra 10%, not the underlying income tax.

Required Minimum Distributions

You cannot leave money in a 408(a) IRA indefinitely. Once you reach age 73, you must begin taking Required Minimum Distributions each year. That age will rise to 75 starting in 2033.¹¹

Your first RMD is due by April 1 of the year after you turn 73. Every RMD after that is due by December 31. Delaying the first RMD to April 1 means two taxable distributions land in the same calendar year, which can push you into a higher bracket.

The RMD amount is calculated by dividing your account balance as of December 31 of the prior year by a life expectancy factor from IRS tables. If you own multiple Traditional IRAs, you calculate the RMD for each separately but can withdraw the total from whichever account or combination you choose.

Missing an RMD carries a 25% excise tax on the shortfall. If you catch the mistake and withdraw the correct amount within two years, the penalty drops to 10%.¹¹

Qualified Charitable Distributions

If you are 70½ or older, you can transfer money directly from your Traditional IRA to a qualified charity through a Qualified Charitable Distribution. For 2026, the annual QCD limit is $111,000 per person, adjusted for inflation. A QCD counts toward your RMD for the year, but the transferred amount is excluded from your taxable income.¹²

The tax advantage over simply withdrawing the money and writing a check is real. A regular withdrawal increases your adjusted gross income even if you offset it with a charitable deduction, which can raise Medicare premiums, increase taxation of Social Security benefits, and affect other income-dependent calculations. A QCD avoids that because the money never appears as income on your return. The transfer must go directly from the IRA custodian to the charity; you cannot withdraw the funds and then donate them.

Moving Money Between Accounts

Moving retirement money between accounts is one of the most common IRA transactions, and it is also where expensive mistakes happen. The rules depend on the method.

Trustee-to-Trustee Transfers

A trustee-to-trustee transfer moves money directly from one IRA custodian to another without you ever touching the funds. No tax withholding, no 60-day deadline, no limit on how often you can do it. If you are switching IRA providers, a direct transfer is almost always the right move.¹³

60-Day Rollovers

An indirect rollover means you receive the distribution personally and then redeposit it into an IRA or qualified plan within 60 calendar days. Miss that deadline by even one day and the entire amount is treated as a taxable distribution, potentially triggering the 10% early withdrawal penalty.¹³

Two further traps apply. You can only do one IRA-to-IRA rollover in any 12-month period, and the IRS counts all your IRAs as one for this purpose. Trustee-to-trustee transfers, Roth conversions, and rollovers from employer plans to IRAs do not count against the limit. And if you are rolling money out of a 401(k) or similar employer plan, the plan administrator must withhold 20% for federal taxes; you will need to supply that 20% from other funds to roll over the full amount, or the withheld portion becomes a taxable distribution. If circumstances beyond your control cause you to miss the 60-day window, you can self-certify for a waiver using the model letter in IRS Revenue Procedure 2016-47, though the IRS can still reject the waiver on audit.¹⁴

Roth Conversions

A Roth conversion moves money from a Traditional IRA to a Roth IRA. The converted amount is taxed as ordinary income in the year of the conversion, but future growth and qualified withdrawals from the Roth are tax-free. There is no income limit on conversions. Anyone can do one regardless of what they earn. If you have any pre-tax money in any Traditional IRA, including SEP and SIMPLE IRAs, the pro-rata rule treats the conversion as coming proportionally from both pre-tax and after-tax dollars, which can produce an unexpected tax bill.⁷

What Happens When You Die

The rules for an inherited 408(a) IRA depend on who inherits it. The SECURE Act changed the rules for most beneficiaries starting in 2020, and this is an area where heirs often get caught by surprise.

A surviving spouse has the most flexibility. They can roll the inherited IRA into their own IRA and treat it as if they had always owned it, continuing to follow normal contribution and distribution rules. They can also keep it as an inherited IRA, which lets them delay RMDs until the year the deceased spouse would have turned 73. A surviving spouse is the only beneficiary allowed to convert an inherited IRA to a Roth IRA.

Most non-spouse beneficiaries must empty the entire inherited IRA by December 31 of the 10th year after the owner’s death.¹⁵ If the original owner had already started taking RMDs before dying, the beneficiary must also take annual distributions during that 10-year window. Whatever remains in the account at the end of year 10 must come out.

A narrow group of eligible designated beneficiaries can stretch distributions over their own life expectancy instead:¹⁵

Minor children of the deceased owner, who stretch until reaching the age of majority, when the 10-year clock then starts.
Disabled or chronically ill individuals.
Beneficiaries not more than 10 years younger than the deceased owner.

Beneficiaries who do not qualify, including most adult children, siblings, and friends, are locked into the 10-year rule.

Excess Contributions and Creditor Protection

Contributing more than the annual limit, contributing without earned income, or failing to remove an ineligible contribution triggers a 6% excise tax on the excess amount. The penalty repeats every year the excess sits in the account. Catch the mistake before your tax filing deadline, including extensions, and you can withdraw the excess plus any earnings it generated to avoid the penalty entirely. After the deadline, you can apply the excess to the next year’s contribution if you have room, but the 6% applies for any year the excess remains.

Traditional IRAs are not covered by ERISA, the federal law that gives broad creditor protection to employer-sponsored plans like 401(k)s. Outside of bankruptcy, IRA protection varies entirely by state. Some states fully exempt IRAs from creditors; others protect only what is reasonably necessary for retirement.

In federal bankruptcy, Traditional and Roth IRA assets are protected up to $1,711,975, adjusted every three years for inflation, under federal law.¹⁶ Money rolled into an IRA from an employer plan does not count against that cap; it retains the unlimited protection of the original plan. If you have rolled over a large balance from a workplace plan, keeping records that trace those dollars is worth the trouble if creditor issues ever arise.

1
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
2
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
3
Internal Revenue Service. Retirement Topics – IRA Contribution Limits
4
Internal Revenue Service. Traditional and Roth IRAs
5
Internal Revenue Service. COLA Increases for Dollar Limitations on Benefits and Contributions
6
Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs
7
Internal Revenue Service. About Form 8606, Nondeductible IRAs
8
Internal Revenue Service. Topic No. 557, Additional Tax on Early Distributions From Traditional and Roth IRAs
9
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
10
Internal Revenue Service. Determination of Substantially Equal Periodic Payments Notice 2022-6
11
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
12
Internal Revenue Service. Seniors Can Reduce Their Tax Burden by Donating to Charity Through Their IRA
13
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
14
Internal Revenue Service. Retirement Plans FAQs Relating to Waivers of the 60-Day Rollover Requirement
15
Internal Revenue Service. Retirement Topics – Beneficiary
16
Office of the Law Revision Counsel. 11 USC 522 – Exemptions