Traditional IRA
A retirement account with tax-deductible contributions that grow tax-deferred until withdrawal in retirement.
What You Need to Know
A Traditional IRA lets you save for retirement while reducing your current taxable income. Contributions are typically tax-deductible, and your money grows tax-free until you withdraw it in retirement.
2025 Contribution Limits:
- Under 50: $7,000/year
- 50+: $8,000/year
Tax Benefits:
- Contributions may be tax-deductible (reduces current year taxes)
- Investments grow tax-deferred (no taxes on dividends/gains)
- Pay ordinary income tax on withdrawals in retirement
Income Limits for Deduction: If you're covered by a workplace retirement plan, the deduction phases out at higher incomes ($79,000-$89,000 single; $126,000-$146,000 married in 2025).
Withdrawal Rules:
- Penalty-free withdrawals start at age 59½
- Required Minimum Distributions (RMDs) begin at age 73
- Early withdrawals face 10% penalty plus income tax
Traditional vs. Roth: Choose Traditional if you expect to be in a lower tax bracket in retirement. The upfront tax deduction is valuable if you're currently in a high bracket.
Sources & References
This information is sourced from authoritative government and academic institutions:
- irs.gov
https://www.irs.gov/retirement-plans/traditional-iras
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Related Terms in Retirement Planning
401(k)
An employer-sponsored retirement account where you contribute pre-tax income, often with employer matching.
Backdoor Roth IRA
A legal strategy allowing high earners to contribute to a Roth IRA by converting a Traditional IRA contribution.
Employer Match
Free money from your employer when you contribute to a 401(k) or similar retirement plan, typically matching 3-6% of your salary.
FIRE (Financial Independence, Retire Early)
A movement focused on saving aggressively (50-70% of income) to retire decades earlier than traditional retirement age.
Pre-Tax (Before Tax)
Income or contributions made before taxes are withheld, reducing current taxable income.
QCD (Qualified Charitable Distribution)
A tax-free donation of up to $105,000 per year directly from your IRA to charity, available to those age 70½ and older, that counts toward your RMD.