Traditional IRA

 

What is a Traditional IRA?

A Traditional IRA is an individual retirement account. This tax-advantaged vehicle allows individuals to make contributions and deduct those contributions from their taxable income. The earnings also grow tax-deferred until withdrawals are made in retirement. There is no age requirement or income limit to contribute to a Traditional IRA; however, there are contribution limits and withdrawal rules.

 

TL;DR –A Traditional IRA is a tax-advantaged account that allows you to save taxes on contributions now and pay taxes on withdrawals in retirement.

 

Eligibility

  • No age requirement

  • Must have earned income (wages, salary, self-employment income)

Contribution Limits

  • $6,000 per year if under age 50

  • $7,000 per year if age 50 or over

(contribution limits apply to IRAs and Roth IRAs in the aggregate)

Withdrawals

  • 59½ and under: Taxes and 10% penalty

  • 59½ to 72: Taxes and no withdrawal penalty

  • 72 & over: Taxes apply and distributions are required by law (called required minimum distributions or RMDs)

Taxes

  • Contributions are made with pre-tax dollars, meaning the amount can be deducted from your taxable income

  • Money grows tax-deferred; however, withdrawals will be taxed as ordinary income.

 
Edward Oh