Traditional IRA

A Traditional Individual Retirement Account (Traditional IRA) is a type of retirement savings account that allows you to contribute pre-tax dollars, reducing your taxable income for the year. The money grows tax-deferred, meaning you won’t pay taxes on the investment earnings until you withdraw the funds in retirement. Here are some key benefits and features of a Traditional IRA:

Key Benefits

Tax-deferred growth: The money in your Traditional IRA grows tax-deferred, meaning you won’t pay taxes on the investment earnings until withdrawal.
Tax deduction: Contributions to a Traditional IRA may be tax-deductible, reducing your taxable income for the year.
Retirement income: Traditional IRAs provide a source of income in retirement, helping to supplement other retirement income sources.

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Key Features

Contribution limits: For 2026, the annual contribution limit for Traditional IRAs is $7,500 if you are under 50, or $8,600 if you are 50 or older (the extra $1,100 is the catch-up contribution, which now adjusts for inflation). The limit applies to all your IRAs combined, and you cannot contribute more than your earned income for the year.
Deductibility: Contributions to a Traditional IRA may be tax-deductible, but this depends on your income level and whether you or your spouse are covered by a retirement plan at work.
Required minimum distributions (RMDs): You must take RMDs from a Traditional IRA starting at age 73 if you were born between 1951 and 1959, or at age 75 if you were born in 1960 or later, under the SECURE 2.0 Act. That means annual withdrawals on the IRS schedule, whether you need the money or not.
Investment options: You can invest your Traditional IRA contributions in a variety of assets, such as stocks, bonds, ETFs, and mutual funds.
Withdrawal rules: Withdrawals from a Traditional IRA are taxed as ordinary income, and you may face a 10% penalty if you withdraw funds before age 59 1/2, unless you meet certain exceptions.

Who is a Traditional IRA suitable for?

A Traditional IRA is a good option for:

Those who expect to be in a lower tax bracket in retirement: If you think you’ll be in a lower tax bracket in retirement, a Traditional IRA can provide tax-deferred growth and reduce your taxable income in retirement.
Those who need a tax deduction now: If you need a tax deduction to reduce your taxable income, a Traditional IRA might be a good choice.
Those who are closer to retirement: If you’re closer to retirement, a Traditional IRA can provide a source of income to supplement other retirement income sources.

When the Deduction Phases Out

The word ‘traditional’ makes the deduction sound automatic, and it is not. If neither you nor your spouse is covered by a retirement plan at work, your contribution is fully deductible no matter what you earn. But if either of you is covered by a workplace plan like a 401(k), the deduction phases out above certain income levels, and high earners get no deduction at all. You can still contribute the money; you just do not get the tax break. For 2026, the phase-out ranges are $81,000 to $91,000 for single and head-of-household filers and $129,000 to $149,000 for joint filers, per the IRS.

Traditional vs. Roth: the Real Question

The entire Traditional-versus-Roth decision is one bet: will your tax rate be higher now or in retirement? If you are in a high bracket today and expect a lower one later, the Traditional IRA’s upfront deduction wins. If you are early in your career, in a low bracket, or expect higher taxes later, paying the tax now with a Roth usually wins. Young earners who assume they want the deduction often have it backwards. Compare your marginal rate today against your likely rate in retirement, and let that decide.

Comparison to Roth IRA

The main difference between a Traditional IRA and a Roth IRA is when you pay taxes:

Traditional IRA: Contributions are tax-deductible, and withdrawals are taxed as ordinary income.
Roth IRA: Contributions are made with after-tax dollars, and withdrawals are tax-free.