Traditional IRA

Definition

A Traditional IRA (Individual Retirement Account) is a tax-advantaged retirement savings account where contributions may be tax-deductible, and investments grow tax-deferred until withdrawal. For 2025, the contribution limit is $7,000 ($8,000 if age 50+). Tax deductibility depends on income and whether you have access to an employer-sponsored plan. Withdrawals in retirement are taxed as ordinary income. Required Minimum Distributions (RMDs) must begin at age 73. Early withdrawals before age 59½ generally incur a 10% penalty plus income tax, with exceptions for first-time home purchases, education expenses, and certain hardships. Traditional IRAs are generally preferred by those who expect to be in a lower tax bracket in retirement.