A Traditional IRA (Individual Retirement Account) is a type of retirement savings account that offers tax advantages to encourage people to save for retirement.
Key Features
Tax-Deferred Growth - Investments in a Traditional IRA grow tax-deferred, meaning you don’t pay taxes on earnings (interest, dividends, capital gains) until you withdraw the money in retirement.
Tax-Deductible Contributions - Depending on your income and whether you or your spouse are covered by a retirement plan at work, your contributions may be fully or partially tax-deductible, reducing your taxable income in the year you contribute.
Contribution Limits (2025) - You can contribute up to $7,000 per year (or $8,000 if you're age 50 or older, due to a $1,000 catch-up contribution).
Withdrawals - You can start withdrawing penalty-free at age 59½, but the withdrawals are taxed as ordinary income. If you withdraw before 59½, you’ll generally owe income tax + a 10% penalty, with some exceptions (e.g., first-time home purchase, qualified education expenses).
Required Minimum Distributions (RMDs) - Starting at age 73, you must begin taking required minimum distributions from your Traditional IRA each year, whether you need the money or not.
