Traditional Individual Retirement Account (Traditional IRA)
What it is
A Traditional IRA is a US individual retirement account that defers tax on contributions and growth. Contributions may be tax-deductible in the year they're made (subject to income and workplace-plan limits), investments inside grow tax-deferred, and withdrawals in retirement are taxed as ordinary income.
The Traditional IRA is a wrapper. It can hold almost any qualified investment: cash, CDs, mutual funds, ETFs, stocks, bonds, REITs.
Who can open one
US citizens or residents with earned income. There's no upper age limit (the age-70½ contribution cap was repealed by the SECURE Act in 2019). No income limit applies for opening or contributing — but the deductibility of the contribution does phase out for higher earners when the contributor (or spouse) is covered by a workplace retirement plan.
How contributions work
The 2025 contribution limit is $7,000 per year (combined across Traditional + Roth IRAs), plus a $1,000 catch-up if 50 or older. Contributions can be made up to the tax filing deadline of the following year. Contribution room does not carry forward.
Deductibility depends on income + workplace coverage:
- Not covered by a workplace plan: fully deductible regardless of income.
- Covered by a workplace plan: phases out between $79,000–$89,000 (single, 2025) or $126,000–$146,000 (married filing jointly).
- Spouse covered by a workplace plan: phases out between $236,000–$246,000.
Above the top of the phase-out, contributions are still allowed but become non-deductible. Track non-deductible contributions on IRS Form 8606 — they create basis that's withdrawn tax-free even when earnings are taxable.
Tax treatment
Deductible contributions reduce the contribution year's taxable income; growth is tax-deferred; withdrawals are taxed as ordinary income in the year withdrawn. Non-deductible contributions create basis (already-taxed money), which comes out tax-free pro-rata with earnings.
Required Minimum Distributions begin at age 73 (rising to 75 for those born in 1960 or later, per SECURE 2.0). RMDs are calculated from the IRS Uniform Lifetime Table — failing to take them triggers a 25% excise tax on the missed amount.
How withdrawals work
Withdrawals before age 59½ are subject to ordinary income tax plus a 10% early-withdrawal penalty unless an exception applies (first-time home purchase up to $10,000, qualified higher education, certain medical expenses, substantially equal periodic payments, etc.).
Withdrawals after age 59½ are taxed as ordinary income at the holder's marginal rate. Required Minimum Distributions begin at age 73.