Traditional IRA

An IRA is a good deal that just keeps getting better. As a retirement program, an IRA allows you to contribute up to $5,500 into a tax-deferred account and deduct your contribution from your current income taxes in many cases.

Taxpayers age 50 and over have a special catch-up period that allows them to add another $1,000 per year.

Your contributions and earnings grow tax-deferred until you begin withdrawals – usually not before age 59½. Withdrawals are taxed as ordinary income in the year they are taken out of the account. In most cases, the IRS treats withdrawals before the age of 59½ as ordinary income and imposes a 10 percent penalty on top of that.

Here are some additional features of traditional IRAs:

  • You can make an early withdrawal (before age 59½) if you use the money for the purchase of a first home or to cover college costs.
  • You must begin taking distributions by age 70½, and you can no longer contribute after this age.
  • You can contribute to an IRA up until the date your income taxes are due for that year.
  • You can contribute up to $5,500 or 100 percent of your earned income, whichever is less. That limit may increase in future years.
  • Many people find their IRA contributions are fully deductible; however, if you or your spouse participate in an employer-sponsored retirement plan – a 401(k), for example – you may not be eligible for a full deduction. Our "Is My IRA Deductible?" tool can help you determine your eligibility.
  • Not FDIC Insured
  • No Bank Guarantee
  • May Lose Value