Traditional IRAs

Traditional IRAs — Save for retirement, save on taxes


Traditional IRAs — Save for retirement, save on taxes

A traditional Individual Retirement Account (IRA) is a retirement savings account that provides the opportunity for either an income-tax deductible or non-deductible contribution plus the opportunity for tax-deferred growth. If you meet certain income qualifications, you can contribute money on a pre-tax basis, meaning your annual taxable income is reduced by the amount you invest, lowering your current income tax bill. You pay taxes on your contributions and investment earnings when you withdraw the money, typically in retirement. IRS penalties are applicable on most withdrawals made before to age 59½.

Who is eligible?

If you’re under age 70½ and have employment related income, you can put money into a traditional IRA each year, up to the IRS-defined annual limits.

If you’re under 70 ½ and have employment-related income, you can invest in a traditional IRA.

IRA Eligibility Calculator

Do you qualify for IRA tax-advantages?

What are the tax breaks?

Whether or not your contribution is tax-deductible depends on your income level and your access to an employer-sponsored retirement plan like a 401(k). The IRS adjusts these requirements periodically, so check with your tax professional to see if you qualify. Even if you can’t get an up-front tax deduction, you can still invest up to the contribution limits and your money can grow tax-deferred until you take a withdrawal.

How do withdrawals work?

Once you reach age 59½, you can withdraw as much or as little of your IRA account balance as you like. You will owe income taxes at your regular tax rate in the year you withdraw the money. If you take a withdrawal before age 59½ you may have to pay a 10 percent penalty in addition to regular income taxes, unless the withdrawal falls under one of the IRS exceptions, such as a first time home buyers eligibility, qualified educational expenses, death or disability. You don’t have to take withdrawals until you reach age 70½, at which point the IRS requires you to meet a minimum withdrawal amount each year.

Is a traditional IRA right for you?

If you’re eligible to make tax-deductible contributions and you’re also eligible for a Roth IRA, it’s a question of taking your tax deduction today or waiting until retirement. If you think you might be in a lower tax bracket when you retire, consider a traditional IRA and pay your taxes later. For the most tax-planning flexibility, many people invest in both a traditional and a Roth IRA.