Traditional IRA

Loading the player...

What is a 'Traditional IRA'

An individual retirement account (IRA) that allows individuals to direct pretax income, up to specific annual limits, toward investments that can grow tax-deferred (no capital gains or dividend income is taxed). Individual taxpayers are allowed to contribute 100% of compensation up to a specified maximum dollar amount to their Traditional IRA. Contributions to the Traditional IRA may be tax-deductible depending on the taxpayer's income, tax-filing status and other factors.

Other variants of the IRA include the Roth IRA, SIMPLE IRA and SEP IRA.

BREAKING DOWN 'Traditional IRA'

Traditional IRAs are held by custodians, such as commercial banks and retail brokers, and investors can place IRA funds into stocks, bonds, funds, and other financial assets deemed fit by the custodian. Assets, such as real estate come with heavy restrictions from the IRS, and may be taxed differently.

When the individual begins to receive distributions from a Traditional IRA, the income is treated as ordinary income and may be subjected to income tax. This differs from the Roth IRA, which can offer tax-free distributions. For people over the age of 50, higher annual contribution limits may apply if the IRA has been recently created or under-funded in previous tax years. Distributions are required to come out of the account by the time the owner reaches age 70.5.

RELATED TERMS
  1. Individual Retirement Account - ...

    An investing tool used by individuals to earn and earmark funds ...
  2. Roth IRA Conversion

    A reportable movement of assets from a Traditional, SEP or SIMPLE ...
  3. IRS Publication 590: Individual ...

    A document published by the Internal Revenue Service (IRS) that ...
  4. Roth IRA

    An individual retirement plan that bears many similarities to ...
  5. IRA Plan

    A plan that individuals may establish to arrange and plan for ...
  6. IRA Rollover

    A transfer of funds from a retirement account into a Traditional ...
Related Articles
  1. Retirement

    Roth IRA Contribution Limits in 2016

    Discover the benefits of Roth IRA accounts and how much you can contribute for your retirement. Learn which IRA plan is best for you.
  2. Term

    How Traditional IRAs Work

    A traditional IRA is a tax-advantaged retirement account that includes stocks, bonds, mutual funds and other investments.
  3. Taxes

    Roth IRA Vs. Traditional IRA

    Learn more about the differences between a Roth IRA and traditional IRA.
  4. Retirement

    How Much It Takes to Max Out Your IRA

    IRAs have certain tax advantages that allow your nest egg to grow at a faster rate. But there are annual limits on how much you can contribute.
  5. Products and Investments

    7 Top IRA Strategies for Your Clients

    With IRA season in full swing, advisors should consider these seven strategies for clients.
  6. IRAs and Roth IRAs

    What IRAs are: Tax-advantaged savings accounts for individuals. Pros: Tax benefits; investments grow tax-deferred and contributions may be deductible; numerous investment choices with range of ...
  7. Retirement

    Funding Your IRA vs. Your Roth IRA, Which First?

    The answer depends on where you are in your career and personal life each year. Here are some scenarios and rules to think about.
  8. Retirement

    The Best Bet for Taxes: Traditional or Roth IRAs?

    Choosing a Traditional IRA over a Roth IRA, or vice versa, depends on financial situation and long-term goals, especially if you want to trade.
  9. Retirement

    5 Secrets You Didn't Know About Traditional IRAs

    A traditional IRA gives you a current-year tax benefit and future years of tax savings – minus the income restrictions that limit who can have a Roth IRA.
  10. Financial Advisors

    IRAs: Top Things You Need to Know About Them

    By understanding the major rules for both traditional and Roth IRAs, you'll be prepared to enjoy the benefits of these investment opportunities.
RELATED FAQS
  1. What is the difference between a ROTH, SEP and Traditional IRA?

    The Roth IRA was established in 1996 as the newest addition to the individual retirement accounts (IRAs) available to individuals. ... Read Answer >>
  2. Can I hold multiple IRAs?

    IRAs are investments made to plan for retirement, which offer certain tax advantages, depending on the type, and often matching ... Read Answer >>
  3. Can an individual contribute to both a Roth IRA and a Traditional IRA in the same ...

    Yes, an individual can contribute to both a Roth IRA and a Traditional IRA in the same year. The total contribution into ... Read Answer >>
  4. I want to take advantage of retirement savings. Can I contribute $6K to a Roth IRA, ...

  5. How does an IRA grow over time?

    Learn how the magic of compounding helps grow individual retirement accounts, or IRAs. IRAs are one of the most proven options ... Read Answer >>
  6. What are the main differences between a Simplified Employee Pension (SEP) IRA and ...

    Discover the difference between a simplified employee pension IRA and a traditional IRA so that you can choose the best retirement ... Read Answer >>
Hot Definitions
  1. Physical Capital

    Physical capital is one of the three main factors of production in economic theory. It consists of manmade goods that assist ...
  2. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  3. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  4. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  5. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  6. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
Trading Center