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)
Offered by government and some non-profit employers.
Also allows pre-tax or Roth contributions.
Key benefit: No early withdrawal penalty (unlike 401(k)/403(b)) if you leave your job, even before age 59½.
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.
