Definition
Traditional IRAs offer potential tax deductions on contributions, with all growth tax-deferred until withdrawal. Distributions in retirement are taxed as ordinary income. Deductibility depends on income and whether you have an employer plan. RMDs begin at age 73 (SECURE 2.0). Traditional IRAs are advantageous when current tax rates exceed expected retirement rates.
lightbulb Example
A 35-year-old in the 24% tax bracket deducts $7,000 IRA contribution, saving $1,680 in taxes today. Over 25 years at 8%, the $7,000 grows to $47,930. In retirement at a 12% rate, the $47,930 withdrawal costs $5,752 in taxes—saving $12,072 vs Roth approach.
verified_user Key Points
- Contributions may be tax-deductible
- Growth is tax-deferred until withdrawal
- Distributions taxed as ordinary income
- RMDs begin at age 73