What is Traditional IRA?

A Traditional IRA is a retirement account where contributions may be tax-deductible, and withdrawals in retirement are taxed as ordinary income. It allows individuals to contribute pre-tax or tax-deductible earnings toward retirement savings, with investment earnings compounding on a tax-deferred basis. Income tax is paid only when withdrawals are taken in retirement, at the participant's ordinary income tax rate.

Contributions may be fully or partially tax-deductible depending on the filer's Modified Adjusted Gross Income (MAGI) and whether they or their spouse are covered by an active retirement plan at work. For 2026, the deduction phase-out begins at $81,000 for single filers covered by a workplace plan and $129,000 for married couples filing jointly where the contributing spouse is covered. If neither spouse has a workplace plan, contributions are fully tax-deductible regardless of income.

Withdrawals made before age 59½ are generally subject to a 10% early withdrawal tax penalty in addition to regular income tax. Account owners must also begin taking Required Minimum Distributions (RMDs) annually starting at age 73 (rising to age 75 in 2033 under SECURE 2.0).