What Is A Traditional IRA?

The traditional IRA, an Individual Retirement Account, has largely been pushed aside in the news for the newer Roth IRA.  There are many benefits to the new Roth IRA accounts, however the traditional IRA both is a good investment for retirement accounts and for many the only IRA option.  A traditional IRA account functions to assist Americans with saving for their retirement.  Unlike a typical savings account, traditional IRA accounts have many benefits and tools to both avoid excessive taxation and also include more asset types for your retirement years.  The major aspects that comprise a traditional IRA are:


No income limits.  For this reason alone many Americans use the traditional IRA as opposed to the Roth IRA which does not allow those making over set amounts contribute.

Tax deductible contributions.  With a traditional IRA the contributions made each year are tax deductible from your gross income.  For example if you earn $50,000 in a single year and contribute $5,000 to your IRA, your adjusted gross taxable income will be $45,000.  In this way the money you put in is not taxed as income.

At 59.5 years an individual may begin withdrawing from their retirement accounts with traditional IRA saving.  At 70.5 years of age it is mandatory to start removing funds.  Any money removed before age 59.5 will be taxed at the rate of 10% as a penalty for early removal.

Taxes are paid when the amount of money in the traditional IRA is removed.  It is taxed as income.

Traditional IRA’s let you include stocks, bonds, and other financial instruments for investment into retirement accounts.

Disadvantages To Traditional IRA To Roth IRA

Not everything is how one might want it with a traditional IRA account; however any retirement account is better than simply using a bank.  For most people who are upper middle class, meaning they make more than $120,000 single or $179,000 filing jointly simply cannot have any other account than a traditional IRA, the Roth IRA is not an option.  Other disadvantages to traditional IRA accounts can be that one is taxed during their retirement.  Some people would prefer to pay this tax on their retirement accounts when they are still working as income tax, not while retired and watching every dollar.

Related posts:

1. What Is A Roth IRA?
2. What Is An IRA?
3. What Is A Retirement Account?
4. How Do I Invest?
5. What Is A SEP IRA?