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If you are wondering if you made enough money to file taxes this year, the answer will depend on more than just your income. There are other qualifying factors, such as age and marital status. What’s more, even if you are not required to file taxes, it’s often a wise move to do so anyway.

Here, you’ll learn what you need to know about tax-filing requirements based on your income and other aspects of your filing status. In addition, you’ll find some smart tips for filing your tax return this season.

What Factors Determine If You Have to File Taxes

How much do you have to make to file taxes? The answer is, it depends. While income is important, it’s not the only factor to consider. Determining whether you need to file taxes depends on your:

•   Gross income (earned and unearned)

•   Filing status

•   Age

•   Dependent status

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How Much Do You Need to Make to File Taxes?

You’ll likely have to file taxes in 2026 if you’re a single filer and your gross income in 2025 was at least $15,750, or you’re married filing jointly and your gross income was at least $31,500. If you were 65 or older at the end of 2025, those minimum income limits are higher.

Here’s a more detailed look at the filing guidelines for 2025 taxes (filed in 2026).

Single

Filing requirements for single taxpayers vary based on age:

•   Single filers under 65 must file a return if their gross income was $15,750, or more.

•   Single filers 65 or older must file a return if their gross income was $17,750 or more.

Head of Household

Similarly, those with a head of household filing status have varying thresholds based on age:

•   $23,625 for heads of household under 65.

•   $25,625 for heads of household 65 or older.

Married Filing Jointly

Married couples who file a joint return have slightly more complicated requirements since the two spouses could be in different age categories:

•   If both spouses are under 65, they must file if their gross income is $31,500 or more.

•   If one spouse is under 65 and the other is 65 or older, they must file if their gross income is $33,100 or more.

•   If both spouses are 65 or older, they must file if their gross income is $34,700 or more.

Married Filing Separately

Regardless of the age of either spouse, taxpayers who are married but filing separately must file if their gross income is just $5 or more, according to IRS guidelines.

Qualifying Surviving Spouse

If you’re a qualifying surviving spouse, the minimum gross income requirements for filing depend on your age:

•   $31,500 for filers under 65

•   $33,100 for filers 65 or older

If you earn that amount or more, you need to get your tax return in on time. (Remember, if you miss the tax-filing deadline, you may incur penalties.)

Dependent Filers

If you are a dependent claimed on someone else’s taxes, you may still have to file your own return. Minors who earned more than $15,750 from working in 2025 have to file taxes in 2026. If you had unearned income (like interest from a savings account), the filing threshold for 2025 is $1,350.

The following chart summarizes answers to “Do I have to file taxes?” in visual form. It breaks down minimum gross income amounts based on age and filing status for most taxpayers. Dependents are a notable exception. Read on for an overview of income thresholds for tax filing.

If you’re still not sure if you should file, you can use the IRS’s free online tool for determining filing requirements. You’ll need some basic info to accurately complete the assessment, but this tool can come in handy.

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Should I File Taxes Even If I Don’t Have to?

Above is an outline of when you’re legally required to file taxes. But just because you don’t have to file doesn’t mean you can’t or shouldn’t.

Even if you know how much you need to make to file taxes and are below that number, the IRS encourages everyone to file if they can get money back. This may apply if:

•  You had taxes withheld from a paycheck but didn’t make enough money to owe the full amount withheld.

•  You made estimated quarterly payments but didn’t make enough money to owe the amount you paid.

•  You qualify for refundable tax credits that could result in your receiving funds back from the government, like the Earned Income Tax Credit.

Recommended: What Tax Bracket Am I In?

Tax-Filing Tips to Help You This Season

Filing your taxes for the first time or just in need of a refresher? Here are a few tax tips to help you file correctly this season:

•  Be prepared: Preparing for tax season before it’s time to file can make the process much easier. It may be helpful to make a list of all the forms you’re expecting, like W-2 forms and 1099 forms, and keep them located in a safe place until it’s time to file.

•  Check out IRS Free File: No need to pay for professional tax software or an accountant if you qualify for guided tax preparation through the IRS and its partners. As long as your adjusted gross income is $84,000 or less, you’ll qualify.

•  Don’t forget about state and local taxes: We often think of the IRS and our federal tax returns, but depending on where you live, you may also need to pay state and local taxes.

•  File early if possible — and use direct deposit: Generally, the sooner you file, the sooner you’ll get your tax refund (if applicable). If you file electronically and choose direct deposit, the IRS says you can typically expect your refund within three weeks.

•  Understanding extensions: Sometimes, life happens, and it’s just about impossible to meet a deadline. If that’s your situation, you can file for a tax extension and have an extra six months to file your return. Just note that any taxes you owe are still due on Tax Day; it’s only the return itself that can be sent in later.

•  Don’t be afraid to ask for help: Taxes can be overwhelming. While it may not be ideal to pay for an accountant, it could mean earning a larger refund if this tax professional can identify additional tax deductions and credits for which you qualify.

Recommended: How to Make a Budget in 5 Steps

The Takeaway

Tax time can be confusing. It’s not just a matter of knowing how to file but also if you need to file at all. Depending on your income and other factors, you may not be legally required to file your taxes come April. Even if you don’t meet minimum income requirements for filing, however, it might be a good idea to file anyway if you think you may be owed money from previous withholdings or through a refundable tax credit.

And if you do get a juicy refund? Consider depositing it into a high-yield bank account where it can grow.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What happens if I don’t file my taxes?

If you don’t file your taxes but were legally required to, the IRS can charge you a Failure to File Penalty, assessed at 5% of your unpaid tax liability every month that the liability goes unpaid (up to 25%).

If you were owed a refund, you won’t be charged a penalty — but you could miss out on that money owed to you. (You have three years to file to get the refund you’re owed.)

The IRS can take additional steps if you fail to file, including criminal prosecution.

Do I have to file taxes on gifts?

As the recipient of a gift, you generally don’t have to worry about paying taxes on the gift. Instead, the person who gave you the gift would pay the taxes. However, gift-givers don’t have to report gifts to the IRS unless the amount exceeds $19,000 in 2025 and 2026.

Can I file taxes even if I am under the necessary income?

Yes, you can still file taxes if you’re under the necessary income. In fact, the IRS encourages many people to file even if they don’t have to because they might still be eligible for money from the government, perhaps via refundable tax credits.

Photo credit: iStock/Fortgens Photography

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SOBNK-Q425-051

No matter if you are someone who files your tax return as soon as you have all your tax documents or a procrastinator who files at the very last minute, it’s important to be aware of when Tax Day is.

In most years, the IRS federal tax filing deadline — sometimes referred to as Tax Day — is April 15 of the following year. However, in some years, the IRS extends the filing deadline, usually if April 15 falls on a Saturday or Sunday.

What Is Tax Day?

Tax Day is an informal designation for the IRS federal tax filing deadline. Tax Day is usually April 15 of the following year. Most taxpayers are required to file a tax return each year. As part of the tax return, you will reconcile your income tax withholding with the actual amount of tax you owe, based on your income and household situation.

When Are Taxes Due? Tax Deadlines You Need to Know

If you make over a certain amount, you have to file taxes each year. Generally, the filing deadline is April 15 of the following year, however the IRS does sometimes extend the deadline by a day or two. This usually happens when April 15 falls on a Saturday or a Sunday. Make sure to check with the IRS to see when the tax filing deadline is this year.

What If I Can’t Make the 2026 Tax Deadline?

If you can’t file your taxes before the 2026 deadline, you have a couple of options:

•   File for an extension with the IRS. An extension gives you an additional six months to file your taxes without penalties. If you owe money, you’ll need to estimate how much and pay that amount with your extension form. A money tracker can be a helpful tool in planning for your tax payment.

•   File a late return without an extension. If you owe money and file late, you could be charged penalties and/or interest. If you don’t owe taxes — or you expect to get a refund — you may not face additional fees, though it’s still a good idea to file as soon as you can.

When Are Taxes Due?

If you are filing taxes for the first time, you’ll want to make sure that you are aware of the state and federal filing deadlines. In most years, taxes are due by April 15 of the following year.

If you file your tax return or make any payment for taxes owed after the tax filing date, you may be subject to penalties and/or interest. If you’re unsure about what you can and can’t afford — especially with taxes in the mix — a spending tracker app can help.

“It’s also a good idea to check your pay stubs periodically to ensure that the deductions being taken out are accurate and align with your financial goals,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi. “To make sure the appropriate amount of taxes are being withheld from each paycheck, you may also want to revisit your W-4 annually and make any adjustments as your circumstances change.”

When Are State Taxes Due for 2026?

State taxes are another of the types of taxes that are required for many taxpayers. While some states do not have any income tax, those who live in or earn income in one of the states that levies an income tax may be subject to state income tax.

Generally, state income tax filing deadlines follow the federal tax deadline of April 15, though some states have different deadlines. For example, Iowa’s filing deadline is April 30, and Hawaii’s is April 20.

What Are the Other 2026 Tax Deadlines to Know?

In addition to the main federal tax filing deadline of April 15, here are other tax deadlines to be aware of:

•   January 15, 2026: 4th Quarter 2025 estimated taxes are due

•   February 2, 2026: Employers must send workers W-2 and 1099 forms

•   March 16, 2026: Tax returns are due for some business types. This may apply if you have taxes on investment property or certain other forms of business income.

•   April 15, 2026: 1st Quarter estimated taxes are due

•   June 15, 2026: 2nd Quarter estimated taxes are due

•   September 15, 2026: 3rd Quarter estimated taxes are due

•   October 15, 2026: Deadline to file your tax return if you filed an extension

•   January 15, 2027: 4th Quarter estimated taxes are due

Recommended: What Tax Bracket Am I In?

When Do You Mail in Your Tax Payment If You E-filed?

One of the most common tax filing mistakes can happen if you e-file your tax return and also owe tax. You might think that as long as your return has been filed by the deadline that it doesn’t matter when you mail in your tax payment. However, that is not the case.

The IRS is likely to assess a failure-to-pay penalty as well as interest on the amount owed if you do not pay by the filing deadline (generally April 15).

What Is the Tax Return Due Date for Filing Taxes With Extensions?

As you prepare for tax season, it’s important to understand that all taxpayers are eligible to file a free six-month extension. So the tax return due date for filing taxes with an extension is generally October 15.

It’s also important to understand that while an extension gives you six more months to file your return, it does not remove the requirement to pay any tax you owe by April 15. If you do not make a payment for at least the amount that you eventually owe, the IRS may assess penalties and/or interest on your balance.

Recommended: Your Guide to Tax Season 2026

The Takeaway

Every year, most taxpayers are required to file a tax return with the IRS. This tax return reconciles the amount of income tax paid throughout the previous year with the amount of tax actually owed.

When is Tax Day 2026? In most years, the federal tax filing deadline is April 15, however in some years the IRS adjusts the deadline. Failure to file your tax return or make the necessary payments before the filing deadline may result in penalties and/or interest on the amount due.

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FAQ

Is April 15th the last day for taxes?

Yes, in most years, April 15 is the last day to file your tax return and make your tax payment, if necessary. If you file your taxes or make your tax payment after the filing deadline, you may be subject to penalties and/or interest. However, in some years, the IRS extends the filing deadline, usually if April 15 falls on a Saturday or Sunday.

What is the deadline to file taxes for 2026?

The deadline to file your 2025 taxes is April 15, 2026. This is true regardless of what tax bracket you are in. The deadline to file your 2026 taxes is April 15, 2027.

Can I still file my taxes after the 15th?

While the tax filing deadline is normally April 15, at times it can be extended if it would fall on a Saturday, Sunday or holiday. In some years, the tax filing deadline is April 18. It is possible to file your taxes after the filing deadline. However, you may be subject to penalties and/or interest on any amount owed. If you are not going to file before the deadline, you should file Form 4868 to get a free six-month extension and also pay any income tax you might owe.

Are taxes due at midnight on the 15th?

Technically, taxes are due at 11:59 pm on the filing deadline date. Any returns or payments that you are mailing must be postmarked before then. If you are e-filing your return or making a payment online, it must be done by 11:59 pm on the filing deadline date. While the federal tax filing deadline is generally April 15 of the following year, the IRS does sometimes extend the deadline to April 16, 17, or 18.

How late can I mail my taxes?

You can mail your taxes at any time. However, if you file after the deadline, you are potentially subject to penalties and/or interest. The latest day to mail your taxes without penalty is usually April 15 of the following year, but in some years the filing deadline may be a day or two later.

What happens if my taxes are postmarked one day late?

If your tax return or payment is postmarked even one day late, you may be subject to penalties. If you owe taxes as part of your tax return, you may also be subject to interest on the amount owed. To avoid potential penalties or interest payments, make sure to postmark your return by 11:59 pm on the filing deadline day.

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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SORL-Q425-052

There are seven federal tax brackets for the 2025 tax year, ranging from 10% to 37%. As a general rule, the more you earn, the higher your tax rate. And the higher your income and tax rate, the more money you will probably owe the IRS (Internal Revenue Service) in taxes.

How much you’ll pay in federal tax on your 2025 income (due in 2026) will depend on which bracket your income falls in, as well as your tax-filing status and other factors, such as deductions.

When people look at tax charts, however, they often assume that having an income in a particular tax bracket (such as 22%) means that all of your income is taxed at that rate. Actually, tax brackets are “marginal.” This term means that only the part of your income within each range is taxed at the corresponding tax rate.

Read on to learn how to use the 2025 tax chart to figure out how much you owe, plus tips on how to lower your tax bracket.

What Are Tax Brackets?

A tax bracket determines the range of incomes upon which a certain income tax rate is applied. America’s federal government uses a progressive tax system: Filers with lower incomes pay lower tax rates, and those with higher incomes pay higher tax rates.

There are currently seven tax brackets in the U.S. which range from 10% to 37%. However, not all of your income will necessarily be taxed at a single rate. Even if you know the answer to “What is my federal tax bracket?” you are likely to pay multiple rates.

Also note that the income levels have been adjusted in 2025 vs. 2024 to take into account the impact of inflation and other factors. So even if you made the same amount in 2025 as in 2024, you are not necessarily in the same bracket. Similarly, the IRS updated the income tax brackets for 2026, as well, which apply to taxes filed in 2027.

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How Do Tax Brackets Work?

Whether you’re filing taxes for the first time or have been doing so for decades, you may wonder how you know what tax bracket you’re in.

While there are seven basic tax brackets, your income doesn’t necessarily get grouped into one level in which you pay that rate on all of your income. This only happens if your total income is in the lowest possible tax bracket.

Otherwise, the tax system is also graduated in such a way so that taxpayers don’t pay the same rate on every dollar earned. Instead, you pay higher rates on each dollar that exceeds a certain threshold.

•   For example, if your taxable income is $50,000 for 2025, not all of it is taxed at the 22% rate that includes incomes from $48,475 to $103,350 for single filers. Some of your income will be taxed at the lower tax brackets, 10% and 12%. Below, you’ll find a specific example of how this works.

In addition to knowing which tax bracket you’re in, it’s important to be aware of standard deductions that are applied when calculating taxes. (This is separate from common payroll deductions, such as health insurance.) The standard deduction will lower your taxes owed.

For income earned in 2025, the standard deduction is $15,750. for unmarried people and for those who are married, filing separately; $31,500 for those married, filing jointly; $23,625. for heads of household. (There may be tax benefits to marriage beyond your bracket, by the way.)

There are additional deductions that may lower your taxable income, too, such as earmarking certain funds for retirement.

In addition to federal taxes, filers may also need to pay state income tax. The rate you will pay for state tax will depend on the state you live in. Some states also have brackets and a progressive rate. You may also need to pay local/city taxes.

Example of Tax Brackets

According to the 2025 tax brackets (the ones you’ll use when you file in 2026), an unmarried person earning $50,000 would pay:

•   10% on the first $11,925, or $1,192.50

•   12% on the next $36,550 ($48,475 – $11,925 = $36,550), or $4,386

•   22% on the next $1,525 ($50,000 – $48,475 = $1,525), or $335.50

Total federal tax due would be $1,192.50 + $4,386 + $335.50, or $5,914

This doesn’t take into account any deductions. Many Americans take the standard deduction (rather than itemize their deductions).

2025 Tax Brackets

Below are the tax rates for the 2026 filing season. Dollar amounts represent taxable income earned in 2025. Your taxable income is what you get when you take all of the money you’ve earned and subtract all of the tax deductions you’re eligible for.

Not sure of your filing status? This interactive IRS quiz can help you determine the correct status. If you qualify for more than one, it tells you which one will result in the lowest tax bill.

2025 Tax Brackets For Unmarried People

According to the IRS, for tax year 2025, there is a tax rate of:

•   10% for people earning $0 to $11,925

•   12% for people earning $11,926 to $48,475

•   22% for people earning $48,476 to $103,350

•   24% for people earning $103,351 to $197,300

•   32% for people earning $197,301 to $250,525

•   35% for people earning $250,526 to $626,350

•   37% for people earning $626,351 or more

2025 Tax Brackets For Married People Who Are Filing Jointly

Tax rate of:

•   10% for people earning $0 to $23,850

•   12% for people earning $23,851 to $96,950

•   22% for people earning $96,951 to $206,700

•   24% for people earning $206,701 to $394,600

•   32% for people earning $394,601 to $501,050

•   35% for people earning $501,051 to $751,600

•   37% for people earning $751,601 or more

2025 Tax Brackets For Married People Who Are Filing Separately

Tax rate of:

•   10% for people earning $0 to $11,925

•   12% for people earning $11,926 to $48,475

•   22% for people earning $48,476 to $103,350

•   24% for people earning $103,351 to $197,300

•   32% for people earning $197,301 to $250,525

•   35% for people earning $250,526 to $375,800

•   37% for people earning $375,801 or more

2025 Tax Brackets For Heads of Household

Tax rate of:

•   10% for people earning $0 to $17,000

•   12% for people earning $17,001 to $64,850

•   22% for people earning $64,851 to $103,350

•   24% for people earning $103,351 to $197,300

•   32% for people earning $197,301 to $250,500

•   35% for people earning $250,501 to $626,350

•   37% for people earning $626,351 or more

Recommended: How Income Tax Withholding Works

Lowering Your 2025 Tax Bracket

You may be able to lower your income into another bracket (especially if your taxable income falls right on the cut-off points between two brackets) by taking tax deductions.

•   Tax deductions lower how much of your income is subject to taxes. Generally, deductions lower your taxable income by the percentage of your highest federal income tax bracket. So if you fall into the 22% tax bracket, a $1,000 deduction would save you $220.

•   Tax credits, such as the earned income tax credit or child tax credit, can also reduce how you pay Uncle Sam but not by putting you in a lower tax bracket.

Tax credits reduce the amount of tax you owe, giving you a dollar-for-dollar reduction of your tax liability. A tax credit valued at $1,000, for instance, lowers your total tax bill by $1,000.

Many people choose to take the standard deduction, but a tax expert can help you figure out if you’d be better off itemizing deductions, such as your mortgage interest, medical expenses, and state and local taxes.

Whether you take the standard deduction or itemize, here are some additional ways you may be able to lower your tax bracket as you think ahead and prepare for tax season:

•   Delaying income. For example, if you freelance, you might consider waiting to bill for services performed near the end of 2025 until early in 2026.

•   Making contributions to certain tax-advantaged accounts, such as health savings accounts and retirement funds, keeping in mind that there are annual contribution limits.

•   Deducting some of your student loan interest. Depending on your income, you may be able to deduct up to $2,500 in student loan interest paid in 2025.

It can be a good idea to work with an accountant or tax advisor to see if you qualify for these and other ways to lower your tax bracket.

Recommended: 10 Personal Finance Basics

The Takeaway

The government decides how much tax you owe by dividing your taxable income into seven chunks, also known as federal tax brackets, and each chunk gets taxed at the corresponding tax rate, from 10% to 37%.

The benefit of a progressive tax system is that no matter which bracket you’re in, you won’t pay that tax rate on your entire income. If you think you might get hit with a sizable tax bill, you may want to look into changing your paycheck withholdings or, if you’re a freelancer, making quarterly estimated tax payments.

You may also want to start putting some “tax money” aside each month, so you won’t have to scramble to pay any taxes owed when you file in April. A high-yield savings account could be a good option for this purpose.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Has anything changed from 2024 to 2025 tax brackets?

Yes, the IRS has adjusted tax brackets for tax year 2025 to reflect the impact of inflation and other factors.

Has anything changed from 2025 to 2026 tax brackets?

Yes, the IRS reviews and adjusts tax brackets each year, including for tax year 2026 (which is filed in 2027). This is done to help protect taxpayers from an unintentional increase in taxes as a result of inflation.

What is a marginal tax rate?

The marginal tax rate refers to the highest tax bracket that you possibly fall into. However, your effective tax rate averages the taxes you owe on all of your income earned. For this reason, your effective tax rate will likely be lower than your marginal rate.

How do deductions affect your tax bracket?

Deductions lower your taxable income. The more deductions that are taken, the more of your earnings are taxed at reduced brackets.

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SOBNK-Q425-050

A self-directed IRA, or SDIRA, is a type of individual retirement account that allows the account holder to invest in securities other than stocks, bonds, and mutual funds: e.g., real estate, private equity, precious metals, and other alternative assets.

Nonetheless, self-directed IRAs are still subject to basic IRA rules, like annual contribution limits and withdrawal restrictions. SDIRAs are available as regular tax-deferred IRAs as well as Roth IRAs.

The main difference is that a custodian administers a self-directed IRA, but the account holder manages their investments and assumes the risk in doing so.

What Is a Self-Directed IRA (SDIRA)?

Self-directed IRAs and self-directed Roth IRAs allow account holders to buy and sell a wider variety of investments than regular traditional IRAs and Roth IRAs. Experienced investors who are familiar with sophisticated or risky investments may be more comfortable managing a SDIRA, compared with less experienced investors.

While a custodian or a trustee administers the SDIRA, the account holder typically manages the portfolio themselves, taking on the risk and responsibility for researching investments and due diligence. Because these accounts are not as heavily regulated, they may see a higher incidence of fraud.

These accounts may also come with higher fees than regular IRAs, which can cut into the size of the investor’s retirement nest egg over time.

What Assets Can You Put in a Self-Directed IRA or a Self-Directed Roth IRA?

Individuals can hold a number of unique alternative investments in their SDIRA, including but not limited to:

•   Real estate and land

•   Cryptocurrency

•   Precious metals

•   Mineral, oil, and gas rights

•   Water rights

•   LLC membership interest

•   Tax liens

•   Foreign currency

•   Startups through crowdfunding platforms

Recommended: Types of Alternative Investments

Types of SDIRAs

There are specific kinds of SDIRAs customized for certain types of retirement savers looking for certain types of investments.

Self-directed SEP IRAs

Simplified Employee Pension IRAs (SEP IRAs) are for small business owners or those who are self-employed, and who can make contributions that are tax deductible for themselves and any eligible employees they might have. Using a self-directed SEP IRA gives them the flexibility to invest in alternative investments.

Self-directed SIMPLE IRAs

A Savings Incentive Match Plan IRA (or SIMPLE IRA) is a tax-deferred retirement plan for employers and employees of small businesses. Both the employer and the employees can make contributions to this plan. It allows for some alternative kinds of investments.

Self-directed Precious Metal IRAs

Similarly, there are self-directed IRAs for those who would like to invest in precious metals like gold. However, be aware that some precious metal IRAs may charge higher fees than the market price for precious metals.

Recommended: SIMPLE IRA vs Traditional

How Do Self-Directed IRAs Work?

Aside from their ability to hold alternative investments, SDIRAs work much like their conventional IRA counterparts. SDIRAs are tax-advantaged retirement accounts, and they can come in two flavors: traditional SDIRAs and Roth SDIRAs. But investors learning toward an online IRA generally need to find a qualified custodian to set up a SDIRA.

Traditional IRA Contributions and Withdrawal Rules

IRA contributions to traditional accounts goes in before taxes, which reduces investors’ taxable income, lowering their income tax bill in the year they make the contribution. For 2025, individuals can contribute up to $7,000 in total across accounts. Those age 50 and up can make an extra $1,000 catch-up contribution for a total of $8,000. For 2026, individuals can contribute a total of up to $7,500 across accounts. Those age 50 and up can make an additional contribution of $1,100 for a total of $8,600. Investments inside the account grow tax-deferred.

It’s important to pay close attention to self-directed IRA rules, particularly rules for IRA withdrawals. Account holders who make withdrawals before age 59 ½ may owe taxes and a possible 10% early withdrawal penalty. Traditional SDIRA account holders must begin making required minimum distributions (RMDs) after age 73.

Roth IRA Contributions and Withdrawal Rules

Roth SDIRAs have the same contribution limits as traditional SDIRAs. However, retirement savers contribute to Roths with after-tax dollars. Investments inside the account grow tax-free, and withdrawals after age 59 ½ aren’t subject to income tax.

Roth accounts are also not subject to RMD rules. As long as an individual has had the account for at least five years (according to the five-year rule), they can withdraw Roth contributions at any time without penalty, though earnings may be subject to tax if withdrawn before age 59 ½.

There are also rules restricting who can contribute to a Roth IRA, based on their income. In 2025, Roth eligibility begins phasing out at $150,000 for single people, and $236,000 for people who are married and file their taxes jointly. In 2026, Roth eligibility starts to phase out at $153,000 for single filers, and $242,000 for for piople who are married and filing jointly.

Individuals can maintain both traditional and Roth IRA accounts, however, contribution limits are cumulative across accounts, and cannot exceed $7,000, or $8,000 for those 50 and over, in 2025, and $7,500 or $8,600 for those 50 and over, in 2026.

Pros and Cons of Self-Directed IRAs

Self-directed IRAs offer unique perks for the right investor. However, those interested must weigh those benefits against potential drawbacks.

Benefits of Self-Directed IRAs

•   Tax advantages

As noted above, self-directed IRAs offer the same tax advantages as ordinary IRA accounts (along with the same rules and restrictions).

•   Diversification

A SDIRA also allows investors to branch out into different types of investments to which they might otherwise not have access. This allows investors to seek out potentially higher returns and diversify their portfolios beyond the offerings in traditional IRAs.

Alternative investments have the potential to offer higher returns than investors might achieve with conventional stock market investments. However, these opportunities come at the price of higher risk.

•   Potential risk management

Also, investors’ ability to hold a broader spectrum of investments that may help them manage risks, such as inflation risk or longevity risk (the chance an investor will run out of money before they die). For example, some SDIRAs allow investors to hold gold, a traditional hedge against inflation.

Drawbacks of Self-Directed IRAs

While there are some advantages to using SDIRAs, these must be weighed against their disadvantages.

•   Liquidity

For starters, investments like stocks and shares of ETFs are highly liquid. Investors who need their money quickly can sell them in a relatively short period of time, usually a matter of days.

However, some of the investments available in SDIRAs are illiquid. For example, real estate and real assets like precious metals may take quite a bit of time to sell. Individuals who need to sell these assets quickly may find themselves in a situation in which they must accept less than they believe the asset is worth.

•   Cost

SDIRAs may also carry higher fees. Individuals who hold regular IRA accounts may not have to pay management or investment fees. However, SDIRA holders may have to pay fees associated with holding the account and with the purchase and maintenance of certain assets.

•   Risks

Finally, SDIRAs place a lot of responsibility in the hands of their account holders. Investors must research investments themselves and perform due diligence to make sure that whatever they’re buying is legitimate and matches their risk tolerance.

What’s more, investors must make sure the assets they hold meet IRS rules. Running afoul of these rules can be costly, in some cases causing investors to pay taxes and penalties.

Here’s a look at the pros and cons of SDIRAs at a glance:

4 Steps to Opening a Self-Directed IRA

Investors who want to open an SDIRA will need to take the following steps:

1. Find a custodian or trustee.

This can be a bank, trust company, or another IRS-approved entity. You’ll need to follow their requirements for opening an IRA account. Some SDIRAs specialize in certain asset classes, so look for a custodian that allows you to invest in the asset classes in which you’re interested.

2. Choose investments.

Decide which investments you want to hold in your SDIRA. Perform necessary research and due diligence.

3. Complete the transaction.

Find a reputable dealer from which your custodian can purchase the assets, and ask them to complete the sale.

4. Plan withdrawals carefully.

Because alternative assets have less liquidity than other types of investments, you may need to plan sales well in advance of needing retirement income or meeting any required minimum distributions.

The Takeaway

There are advantages and disadvantages to self-directed IRAs. Benefits include the fact that you can make alternative types of investments you might not otherwise be able to. That could help you diversify your portfolio and potentially increase your returns.

However, there are drawbacks to SDIRAs, including higher risk because alternative investments tend to be riskier, and potentially higher fees for maintenance of investments in the plan, plus account fees.

If you’re opening your first IRA account, you’re likely best served with a traditional or Roth IRA. Because of the risk and responsibility involved in using an SDIRA, only experienced investors should consider these accounts.

Prepare for your retirement with an individual retirement account (IRA). It’s easy to get started when you open a traditional or Roth IRA with SoFi. Whether you prefer a hands-on self-directed IRA through SoFi Securities or an automated robo IRA with SoFi Wealth, you can build a portfolio to help support your long-term goals while gaining access to tax-advantaged savings strategies.

FAQ

Are self-directed IRAs a good idea?

There are advantages and disadvantages to self-directed IRAs. Benefits include the fact that you can make alternative types of investments you might not otherwise be able to. That could help you diversify your portfolio and potentially increase your returns.

However, there are drawbacks to SDIRAs, including higher risk because alternative investments tend to be riskier, and potentially higher fees for maintenance of investments in the plan and account fees. In addition, investors need to research the investments themselves and follow the IRS rules carefully to make sure they comply. Finally, many alternative investments are not liquid, which means they could take longer and be more difficult to sell.

Can you set up a self-directed IRA yourself?

To set up a self-directed IRA, find a custodian or trustee such as a bank or trust company to open an account, research and choose your investments, find a reputable dealer for the investments you’d like to make, and have your custodian complete the transactions.

How much money can you put in a self-directed IRA?

For tax year 2025, you can contribute up to $7,000 to a traditional or Roth self-directed IRA, plus an additional $1,000 if you’re 50 or older. For tax year 2026, you can contribute up to $7,500, or $8,600 if you are 50 or older.

Photo credit: iStock/Andres Victorero