What is a Traditional IRA?

A Traditional Individual Retirement Account (IRA) is a tax-advantaged retirement savings account that allows an individual to contribute money for retirement on a pre-tax basis. The contributions made to a Traditional IRA are typically tax-deductible, meaning they can lower the individual's taxable income for the year in which the contributions are made.

How does it work?

Once the money is placed in a Traditional IRA account, it can be invested in a variety of financial instruments such as stocks, bonds, mutual funds, and other assets. The earnings on these investments grow tax-deferred until withdrawals are made in retirement.

Withdrawal rules

Withdrawals from a Traditional IRA are generally taxed as ordinary income when taken out during retirement. There are penalties for early withdrawals before the age of 59 ½, unless under certain qualifying circumstances. After the age of 72, individuals are required to start taking required minimum distributions (RMDs) from their Traditional IRA.

Overall, a Traditional IRA can be a valuable tool for retirement savings due to its tax advantages and potential for long-term growth.