Traditional IRA
An individual retirement account where contributions may be tax-deductible and investments grow tax-deferred. The 2025 contribution limit is $7,000 ($8,000 if age 50+).
A Traditional IRA (Individual Retirement Account) allows you to save for retirement with potential tax-deductible contributions and tax-deferred growth. For 2025, you can contribute up to $7,000, or $8,000 if you are age 50 or older.
Whether your contribution is deductible depends on your income and whether you or your spouse has access to a workplace retirement plan. If neither spouse is covered by a workplace plan, contributions are fully deductible regardless of income. If you are covered by a plan, the deduction phases out at higher income levels.
Investments in a Traditional IRA grow tax-deferred, meaning you pay no taxes on dividends, interest, or capital gains while the money remains in the account. Withdrawals in retirement are taxed as ordinary income. Early withdrawals before age 59½ generally incur a 10% penalty plus income tax, with certain exceptions. Required Minimum Distributions (RMDs) must begin at age 73.
Related Terms
Roth IRA
A retirement account funded with after-tax dollars. Qualified withdrawals in retirement — including all growth — are completely tax-free. The 2025 contribution limit is $7,000 ($8,000 if 50+).
401(k)
An employer-sponsored retirement savings plan that lets you contribute pre-tax income (or after-tax with Roth 401(k)). The 2025 employee contribution limit is $23,500.
Required Minimum Distribution (RMD)
The minimum amount you must withdraw annually from tax-deferred retirement accounts like Traditional IRAs and 401(k)s starting at age 73. Roth IRAs are exempt from RMDs during the owner's lifetime.
Above-the-Line Deduction
Deductions subtracted from gross income to arrive at AGI, available regardless of whether you itemize. Examples include IRA contributions, student loan interest, and HSA contributions.
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