An IRA is usually worth opening if you can leave the money invested for retirement. If the $5,000 is your emergency fund or money you’ll need soon, keep it in savings.

Even if you contribute for only one year, your IRA can stay invested for decades. When your employer’s 401(k) becomes available, you don’t have to close or move the IRA.

The $5,000 contribution limit is outdated. For 2026, the combined traditional and Roth IRA limit is $7,500, or $8,600 if you’re 50 or older. Your contributions also can’t exceed your eligible compensation. [IRS contribution limits](https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits)

| Account | Tax benefit | Main consideration |
|---|---|---|
| Traditional IRA | Eligible contributions reduce taxable income now; growth is tax deferred | Deductible contributions and earnings are taxed when withdrawn |
| Roth IRA | No deduction now; qualified retirement withdrawals are tax free | Eligibility depends on income |
| Savings account | Easy access to your money | Interest is generally taxable each year |

Sources: [IRS IRA rules](https://www.irs.gov/taxtopics/tc451), [IRS interest rules](https://www.irs.gov/taxtopics/tc403).

If neither you nor your spouse is covered by a workplace retirement plan during the tax year, you can generally deduct your full traditional IRA contribution regardless of income. Coverage through a previous employer that year, or through your spouse, can affect the deduction. [IRS deduction rules](https://www.irs.gov/retirement-plans/ira-deduction-limits)

Using your $5,000 example:

- A fully deductible traditional IRA contribution would reduce this year’s federal income tax by about $1,100 at a 22% marginal federal tax rate. You get the tax benefit now and pay tax on withdrawals later.
- If a Roth IRA and a savings account both earned a hypothetical 4% over a full year, each would earn $200. At a 22% federal tax rate, you’d owe $44 on the savings interest. The Roth would preserve that $44 for retirement, assuming an eventual qualified withdrawal.

To compare the accounts through retirement, use the same investments, returns, fees, and out-of-pocket cost. Include taxes on withdrawals and assume you reinvest any tax savings. An IRA provides tax advantages; its returns depend on the investments you choose.

A deductible traditional IRA tends to be attractive when your tax rate is higher now than you expect it to be in retirement. A Roth tends to be attractive in a low-tax year. Keep emergency savings first, since early taxable IRA withdrawals generally incur income tax plus a 10% additional tax unless an exception applies. [IRS withdrawal rules](https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions)