IRA contributions to a traditional IRA reduce the IRA AGI or adjusted gross income because the qualifying contribution is deducted from the AGI. On the other hand, the IRA AGI for a Roth IRA is not reduced, because the contributions are funded with after-tax dollars. Any investment gain is also tax free. When the money is withdrawn at retirement, the amount is not taxed.
Therefore, the money that is deposited into a traditional IRA is deducted from the depositor's AGI, which gives the account holder a tax break on the currently funded amount. Taxes are only owed at the time of withdrawal on a traditional IRA account.
The IRS places limits on the amount you can invest annually in an IRA. As of 2014, the IRA limit for contributors is $5,500 plus a $1,000 catch-up contribution for taxpayers who are 50 years old and over.
Holders of IRAs are not permitted to withdraw funds for retirement until they turn 59.5 years old. All the funds in a traditional IRA account must be withdrawn by the time an account holder is 70.5 years old. The age limit is not capped for withdrawing funds for holders of Roth IRA accounts. You can take out the money at any time after you turn 59.5. Funds withdrawn for retirement before age 59.5 are subject to a penalty of 10% plus and taxation.
As of 2014, a full deduction of an IRA investment is permitted if your AGI as a single filer is under $60,000 per year or below $96,000 annually as a joint filer. A partial deduction is allowed for single filers making $60,000 to $70,000 per year and joint filers who make up to $116,000 annually. Deductions are not available for people making over $70,000 as a single filer or above $116,000 annually as a joint filer.