Traditional IRA
Personal FinanceDefinition
A retirement savings account where you put in money BEFORE it gets taxed. The money grows tax-free inside the account, but every dollar you withdraw in retirement is taxed as regular income. It is the opposite deal of a Roth IRA, which taxes you now but never again.
A Traditional IRA is best if you expect to be in a lower tax bracket when you retire than you are in today. Starting at age 73 the government forces you to take money out each year (called Required Minimum Distributions), so you can't defer taxes forever. The 2025 annual contribution limit is $7,000 (or $8,000 if you are 50+).
A Traditional IRA is best if you expect to be in a lower tax bracket when you retire than you are in today. Starting at age 73 the government forces you to take money out each year (called Required Minimum Distributions), so you can't defer taxes forever. The 2025 annual contribution limit is $7,000 (or $8,000 if you are 50+).
Example
Say you are in the 32% tax bracket. You put $7,000 into a Traditional IRA and immediately save $2,240 on this year's taxes. Thirty years later at 8% growth, that $7,000 grew to about $70,000. You then withdraw it in retirement at a 22% tax bracket and keep roughly $55,000.