Traditional IRA

A traditional individual retirement account (IRA) can help you save for retirement with pretax dollars while allowing for tax-deferred growth.

What is a traditional IRA?

A traditional individual retirement account (IRA) is a tax-advantaged account designed specifically for retirement savings. Unlike Roth IRAs, which you fund with after-tax dollars in exchange for tax-free income in retirement, a traditional IRA offers the potential to save on taxes upfront when you contribute and defer taxes until you take distributions from the account.

Once you open and fund a traditional IRA, you can invest your assets in a variety of investments, including:

These choices give you the opportunity to diversify your savings with an appropriate mix to help meet your retirement objectives.

What are the benefits of a traditional IRA?

Traditional IRAs can help you save on taxes while saving toward your retirement goals.

  • Tax deductible: If your income is below a certain threshold, you can deduct your traditional IRA contributions, which can help lower your tax bill. In some cases, you may qualify for a tax credit in addition to a deduction.
  • Potential tax-deferred growth: Any growth of the assets in your traditional IRA are tax deferred until distributed from the account.

How do traditional IRA contributions work?

Anyone can contribute to traditional IRA if you have taxable compensation. However, your ability to deduct your traditional IRA contributions from your income taxes depends on how much you earn and whether you or your spouse is an active participant in an employer-sponsored retirement plan, such as a 401(k).

You can contribute up to 100% of your taxable compensation or the annual contribution limit, whichever is lower. Contribution limits are set every year by the IRS and are tied to cost-of-living adjustments. Keep in mind your total contribution can be no more than the annual limit for all your traditional and Roth IRAs combined.

See IRA contribution limits for more details.

IRA contributions must be made in cash and can be made at any time during the year up to the tax-filing deadline, not including extensions (generally April 15).

In addition to funding your own IRA, you can also fund an IRA on behalf of your spouse. If your spouse has no taxable compensation, you may be able to contribute up to the maximum IRS annual contribution limit for that account, too, as long as you file a joint tax return.

Eligible taxpayers can also receive the Saver’s Credit for their traditional IRA contributions in addition to the tax deduction. The Saver’s Credit is a nonrefundable tax credit of up to $1,000 for single filers ($2,000 for joint filers) that can help lower your tax bill.

Traditional IRA frequently asked questions

Ready to open a traditional IRA? We can help.

If you’re considering opening a traditional IRA, talk to us. Our financial advisors will work with you to determine what's important to you now and in the future. Together we’ll review your retirement options and design a personalized retirement strategy based on your investment goals. Contact us for a no-obligation consultation today.