Traditional IRA
Deduct your contributions up front to reduce your taxable income, and allow your earnings to grow tax-deferred.
What is a traditional IRA?
A traditional IRA is an Individual Retirement Account (IRA) where you can save for retirement and benefit from tax deferred growth on your investments. Contributions to a traditional IRA are made with pre-tax money; they may be tax deductible if your income qualifies.
A traditional IRA can be a good choice for people who expect they'll be in the same or a lower tax bracket when they retire.
How does a traditional IRA work?
Experience tax savings when you contribute:
You can deduct your contributions, up to a certain amount, from your federal taxes if you meet the IRA income limits.
Plan for the future with tax-deferred growth:
When you withdraw your money, you'll be taxed based on your income at that time.
Consolidate other qualified accounts in an IRA:
So your savings are in one spot, which can help streamline your retirement savings.
What are the contribution rules?
As long as you have earned income, you can contribute to a traditional IRA. There are no income limits.
Can you move your money from a traditional IRA to a Roth IRA?
The short answer is yes, but there are some important considerations to that decision, namely it cannot be undone. Please consult a tax professional in order to understand the tax implications.
Traditional or Roth IRA
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Traditional IRA |
Roth IRA |
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|---|---|---|
| How does it work? | A traditional IRA lets you deduct savings contributions from your taxes, which lowers your taxable income for the year -- but you pay taxes on the money when you withdraw it in retirement. | A Roth IRA uses after-tax money, meaning you pay taxes on your contributions at the time you put the money in and, future withdrawals are tax free as long as you follow Roth IRA rules.
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| Are there income limitations? | You must have earned income, but there’s no maximum limit.
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To contribute the full amount allowed by the IRS in 2024, your Modified Adjusted Gross Income (MAGI) must be below:
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| How much can you contribute? | Up to $7,000; if you’re 50 or older, you can contribute an additional $1,000 in 2024. | |
| When do you pay taxes? | In retirement, when you withdraw your savings. | Up front, before you contribute. Your earnings then grow tax free. There are no taxes or penalties on withdrawals made after age 59½.
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| What are the rules about withdrawals? |
You can withdraw contributions and earnings penalty-free at age 59½, or earlier for certain hardships. You have to start taking required minimum distributions after age 73. |
You can withdraw contributions at any time, without penalty. You can withdraw earnings, penalty-free at age 59½, or earlier for certain hardships, as long as you've followed the rules of a Roth IRA.
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