Moneyzine
Contents
/Personal Finance/Traditional IRAs

Traditional IRAs

Moneyzine Editor
Author: 
Moneyzine Editor
1 mins
September 25th, 2023
Advertiser Disclosure

Definition

The term Traditional IRA is used to describe individual retirement accounts established by the Tax Reform Act of 1986. Traditional IRAs offer individuals the opportunity to defer the payment of federal income taxes on the growth of money placed into the account until withdrawn.

Explanation

Traditional IRAs are held in what are called custodial accounts with financial institutions such as a bank or brokerage house. Money placed into the account can be invested into any asset the financial institution allows, including Certificates of Deposits, mutual funds, bonds or even common stocks.

Subject to income phase out limits, the contributions to a Traditional IRA may be tax deductible. Earnings are allowed to accrue to these accounts free from income taxes until withdrawn.

Anyone with taxable compensation, and under the age of 70 1/2 by the end of the calendar year, can set up an account. Contributions to Traditional IRAs are limited to the lower of taxable compensation or $5,500 in 2018 and $6,000 in 2019. An additional catch up contribution of $1,000 is available to individuals age 50 or older by the end of the calendar year.

Qualified distributions, or withdrawals, can be taken starting after age 59 1/2. At age 70 1/2, Traditional IRAs have minimum required distributions. This is money the IRS expects the accountholder to remove from their account each year starting at age 70 1/2. Non-qualified withdrawals are subject to additional tax penalties.

Our article on Traditional IRA has up-to-date information on contributions, rollovers, as well as deduction phase-out thresholds.

Related Terms

Related Content

  • What Can Help You Meet Your Budget While Shopping for Important Items?
    Budgeting while ensuring you don't compromise on quality can seem daunting. Whether filling your pantry, updating your wardrobe, or keeping up with the latest tech, smart shopping strategies are crucial for keeping your finances in check.
    April 2nd, 2024
  • How to Make a Million Dollars in 10 Years
    Truthfully, this title should actually be “How to Make a Million Dollars in 10 Years Without Going Into Debt", but that is just getting a little too winded for my liking. It’s true though!
    March 26th, 2024
  • How to Apply Maslow’s Hierarchy to Your Money This Year
    You might vaguely remember your psychology teacher talking about Maslow. He pointed at a picture of a triangle as you nodded off in the back of the school room.
    March 27th, 2024
  • How to Tackle Multiple Savings Goals
    When there’s only so much money to go around, there are often multiple savings goals competing for your money. Think of the young professional who’d like to get a more reliable car, buy a house, and save for retirement. Or consider the young family that’s saving for college, retirement, and a bigger house.
    March 22nd, 2024
  • The Countdown to Early Retirement: 10 Expenses to Eliminate
    Dreaming of waving goodbye to the daily grind five years ahead of schedule? The road to early retirement is paved with more than good intentions; it requires a meticulously crafted strategy with surprising twists. It's not solely about what you should be doing—like diligently saving a portion of your income or investing wisely—but also about what you need to stop doing.
    March 22nd, 2024

Contributors

Moneyzine 2024. All Rights Reserved.