A Traditional IRA (Individual Retirement Account) is a personal retirement savings account that offers potential tax-deductible contributions and tax-deferred growth.
2024/2025 contribution limits: - $7,000/year (under age 50); $8,000/year (age 50+, catch-up contribution). - Contributions cannot exceed earned income. - No contributions after age 73... wait, actually there is no age limit since SECURE Act 2.0.
Tax deductibility: - No workplace plan: Contributions are fully deductible regardless of income. - With workplace plan: Deductibility phases out based on MAGI. For 2025: Single filers $79,000–$89,000; MFJ (covered spouse) $126,000–$146,000.
Growth: Tax-deferred — no tax on dividends, interest, or capital gains while inside the IRA.
Distributions: - Before age 59½: Subject to ordinary income tax + 10% early withdrawal penalty (exceptions: disability, death, SEPP, first home, etc.). - After age 59½: Ordinary income tax only. - Required Minimum Distributions (RMDs): Must begin by April 1 following the year you turn 73 (SECURE 2.0).
Investments allowed: Stocks, bonds, mutual funds, ETFs, REITs. NOT: collectibles, life insurance (with minor exceptions), S-corp stock.
> Exam tip: Know the $7,000/$8,000 limits, the RMD age (73), and the 10% early withdrawal penalty. Distinguish from Roth IRA: traditional = tax now on withdrawal; Roth = tax now on contribution.