Traditional IRA
Tax-deferred growth; contributions may be deductible; withdrawals usually taxed as income
A Traditional IRA is a U.S. retirement account that typically provides tax‑deferred growth. You may be able to deduct contributions depending on your income and whether you (or your spouse) are covered by a workplace plan.
The core idea (in plain English)
You may get a tax break when contributing. Investments can grow without annual taxation inside the IRA. Later, withdrawals are generally taxed as ordinary income.
Contributions (high level)
- Annual contribution limits apply (set by the IRS).
- Deductibility depends on your tax situation and workplace plan coverage.
Example — why deductibility matters (simplified)
- You contribute $6,000 and it’s fully deductible.
- Your taxable income may drop by $6,000.
- If you’re in a ~24% federal bracket, that could mean roughly $1,440 less federal tax (state taxes may also apply).
Withdrawals and timing
- Withdrawals are generally taxable as income.
- Early withdrawals can face additional penalties unless an exception applies.
- Required Minimum Distributions (RMDs) may apply at older ages under current law.
Common pitfalls
- Assuming contributions are deductible when they aren’t (verify based on your situation).
- Taking early withdrawals without understanding taxes/penalties.
- Overlooking how IRA withdrawals can increase taxable income and affect other items (case-by-case).
Quick mental checklist
If you can deduct it and your goal is long-term retirement savings, a Traditional IRA can be a strong tax-deferred building block.
Official resources
Educational only. Always confirm eligibility, limits, and plan rules with IRS guidance or plan documents.