A Traditional Individual Retirement Account (IRA) is a tax-advantaged savings account that allows individuals to make pre-tax or tax-deductible contributions, depending on income and whether they have access to an employer plan. Investments grow tax-deferred, and withdrawals in retirement are taxed as ordinary income. The annual contribution limit for 2026 is $7,000, with a $1,000 catch-up for those 50 and older. Required Minimum Distributions (RMDs) begin at age 73.
Traditional IRA
Definition
A Traditional Individual Retirement Account (IRA) is a tax-advantaged savings account that allows individuals to make pre-tax or tax-deductible contributions, depending on income and whether they have access to an employer plan. Investments grow tax-deferred, and withdrawals in retirement are taxed as ordinary income. The annual contribution limit for 2026 is $7,000, with a $1,000 catch-up for those 50 and older. Required Minimum Distributions (RMDs) begin at age 73.
Example
A 40-year-old contributing $7,000 annually to a Traditional IRA for 25 years at 7% returns would accumulate approximately $474,000. If they are in the 22% bracket, each year's contribution saves $1,540 in current taxes.
Key Points
- 1Contributions may be tax-deductible depending on income
- 2Investments grow tax-deferred
- 3Withdrawals taxed as ordinary income
- 4RMDs required starting at age 73
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