A Traditional IRA (Individual Retirement Account) is a type of retirement savings account that allows individuals to save money for retirement on a tax-deferred basis. This means that contributions to a Traditional IRA are made with pre-tax dollars, which can reduce an individual’s taxable income for the year.
Contributions to a Traditional IRA are subject to annual limits, and individuals must have earned income to be eligible to contribute. Additionally, there are age limits for Traditional IRA contributions, with individuals over the age of 50 able to make additional catch-up contributions.
While contributions to a Traditional IRA are tax-deductible, withdrawals during retirement are taxed as ordinary income. This can be advantageous for individuals who expect to be in a lower tax bracket during retirement than they are currently. However, it is important to carefully consider the potential tax implications of Traditional IRA withdrawals, as they can affect an individual’s overall retirement income and tax liability.
Traditional IRAs can be a valuable tool for retirement planning, particularly for individuals who do not have access to an employer-sponsored retirement plan. However, it is important to consider all retirement savings options and to consult with a financial advisor to determine the best strategy for achieving your retirement goals.« Back to Glossary Index