Traditional IRA

How does a traditional IRA work?

A traditional Individual Retirement Account (IRA) helps you build your retirement savings by:

  • Allowing tax-deductible contributions. You may be able to deduct your IRA contributions from your taxes in the year you contributed. This lowers your taxable income.1
  • Investing your money tax-deferred. Your money stays invested in your account without being taxed. When you withdraw your money, you’ll be taxed based on your income at the time of withdrawal.

What are the features of a traditional IRA?

In addition to the immediate tax advantages,2 a traditional IRA lets you:

  • Have investments that grow tax-deferred and you're not taxed on the money until you withdraw it.
  • Get access to a broad range of investment options to help meet your needs.
  • Consolidate other qualified accounts into the IRA, so your savings are in one spot.
  • Save in an IRA even if you already have an employer plan, like a 401(k).

Who can contribute to a traditional IRA?

As long as you are still earning income, you can contribute to an IRA.

Compare a traditional IRA and a Roth IRA

A Roth IRA is another type of IRA you can choose. Compare a traditional and Roth IRA side by side.

 Traditional IRARoth IRA
When do you pay taxes?In retirement, when you withdraw your savings.Up front, before you contribute. Your earnings then grow tax free.
Are there age limits?Can contribute at any age, as long as you have earned income.3Can contribute at any age, as long as you have earned income.3
How much can you contribute?Up to $6,000; if you’re 50 or older, you can contribute an additional $1,000Up to $6,000; if you’re 50 or older, you can contribute an additional $1,000
Are there income limits?You must have earned income, but there’s no maximum limit4To contribute the full amount allowed by the IRS, your income must be below:
  • $125,0005 for a single tax filer
  • $198,0005 for a joint tax filer
Are there rules around withdrawing your money?8
  • You can withdraw money penalty-free at age 59½, or earlier for certain hardship situations
  • You have to start withdrawing money by April 1 of the year after you turn 72.7
  • You can withdraw your contributions at any time, penalty free
  • You can withdraw earnings penalty-free at age 59½, or earlier for certain hardship situations6
  • You’re not required to withdraw your money at any age
When might it make sense to invest in this account?
  • You want to save outside of an employer plan account
  • You expect you’ll be in a lower tax bracket in retirement
  • You want to save outside of an employer plan account
  • You think tax rates may be higher when you retire
  • Your income doesn’t exceed the max limit

Learn more about an IRA with Principal

Find out how Principal® can help you stay on track to reach your retirement goals. Learn more about our IRA options.

Or, open your IRA with Principal today:

We have options to meet your specific investing style.

  • A Principal IRA keeps you in the driver’s seat. It gives you the control—with as much or as little assistance as you want to help you make informed investment decisions.
  • Principal® SimpleInvest IRA uses technology to create an investment mix personalized to you, that’s monitored and rebalanced on an ongoing basis.
  • Let us connect you with a financial professional in your area to discuss a rollover IRA.

Want more information? Read an article on 3 steps for starting an IRA.

Get started

Have an existing retirement account?

Moving your retirement savings into one account can make managing your investments easier.

Already have an IRA with Principal?

Log in to view account information online or add to your account.

1 You’ll deduct your contributions on your tax returns; limits may apply.

2 Deductibility of contributions is dependent upon coverage by employer-sponsored retirement plan and your Adjusted Gross Income.

3 Subject to IRS income limitations.

4 There may be some limits on tax deductibility if you or your spouse has a retirement plan at work.

5 Based on 2021 tax year.

6 Your account must be open for 5 years and you must be over age 59½ (or meet certain other exceptions) to be eligible for qualified tax-free withdrawals.

7 Starting in 2020, the age for required minimum distributions (RMDs) increased from 70½ to 72. However, if you turned 70½ before December 31, 2019 you must take the RMD for 2019, and again in 2020 even if you're not yet 72.

8 For the year 2020, taxpayers have the option to not take an RMD. Subject to certain limited exceptions provided under the Coronavirus Aid, Relief, and. Economic Security (CARES) Act.

This document is intended to be educational in nature and is not intended to be taken as a recommendation.

Investment and insurance products are:

  • Not insured by the Federal Deposit Insurance Corporation (FDIC) or any federal government agency.
  • Not a deposit, obligation of, or guaranteed by any Bank or Banking affiliate.
  • May lose value, including possible loss of the principal amount invested.

The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.

Financial professionals are sales representatives for the members of Principal Financial Group®. They do not represent, offer, or compare products and services of other financial services organizations. 

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