Traditional IRA Definition, Rules and Options

What is a traditional IRA?

A traditional IRA is a type of individual retirement account that allows owners to make pre-tax contributions. While annual contributions could result in a tax break for that year, withdrawals made during retirement will be subject to income tax.

How does a traditional IRA work?

Opening an IRA account is available to anyone who earns income and wants to plan for retirement. What makes a traditional IRA different from other types of IRAs is that owners receive a tax benefit when making contributions.

For example, if your income is $60,000 and you contribute $6,000 to a traditional IRA, your taxable income for that year will drop to $54,000 if you qualify for the tax deduction (more on that below). When you reach 59 1/2 years of age and can start withdrawing from the account, those withdrawals will be subject to income tax.

Opening a traditional IRA can be done at a brokerage, with a robo-advisor or at a bank. If you get one from a broker, you’ll be able to invest in stocks and bonds; IRAs from banks generally offer certificates of deposit and savings accounts. For a long-term goal, such as retirement, stocks and bonds can be a sensible choice because of their higher historical returns. (See how to invest your IRA for simple investment tips.)

There are annual contribution limits when it comes to IRAs. You can contribute up to $7,000 in 2024 and in 2026, even if you’re also contributing to a 401(k) or other workplace savings plan. Those age 50 or older can contribute an additional $1,000 each year. Generally, you (or your spouse) must have earned income to contribute to an IRA. You can also add to your IRA by rolling over money from another retirement account.

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What are the benefits of a traditional IRA?

While there are many benefits of a traditional IRA, it's important to remember the limitations. Here are some of the pros and cons:

PROS	CONS
There are no income limits to open and contribute to a traditional IRA.	If you tap the money before age 59½, you’ll pay taxes and a 10% early distribution penalty, unless your withdrawal qualifies as an exception. (Here’s a full list of the traditional IRA early distribution rules.)
If you're eligible for the tax deduction on contributions, you can claim it whether or not you itemize deductions on your tax return.	You must begin taking distributions — called required minimum distributions — at age 73. (There are no required minimum distributions with Roth IRAs.)
Tax-deferred growth means any gains you would pay taxes on in a standard brokerage account are pushed down the road.	If you're covered by a retirement plan at work, your ability to deduct IRA contributions may be reduced or eliminated at higher incomes.
You can use traditional IRA money to pay for qualified college expenses without paying an early distribution penalty, although you'll pay taxes on the distribution.
You can use up to $10,000 from a traditional IRA toward the purchase of your first home (again, you’ll owe taxes on the distribution but no penalty).
You pay regular income tax on distributions from your traditional IRA. See what tax bracket you're in

How to open a traditional IRA

To open a traditional IRA, decide what kind of investor you want to be — hands-on or hands-off.

Hands-on investing. If you want to choose your own investments, you might consider an online broker. With a broker, you’ll select from investments accessible through that provider, including stocks, bonds and mutual funds.
Hands-off investing. If choosing your own investments sounds too daunting, consider the hands-off approach with a robo-advisor. These providers, which now include many of the most recognizable names in investing, use automated technology to choose investments based on your goals and investing horizon for a fraction of what a traditional investment manager might charge.

» Find the best IRA account for you

Who is eligible for a traditional IRA?

The good news: Everyone can open and contribute to a traditional IRA. The bad news: Not everyone is eligible to deduct contributions and reap the tax benefits of a traditional IRA.

Qualifying for a traditional IRA when you have a 401(k) or other employer plan

If you or your spouse has a retirement plan at work, the amount of your traditional IRA contribution that you can deduct is reduced, or eliminated altogether, once you hit a certain income. You can still make contributions, but they won’t be tax-deductible.
If you, and your spouse if you're married, don't have retirement plans at work, then you can deduct your IRA contribution no matter how much your income.

Note: The income limits apply to your modified adjusted gross income (MAGI), which is your adjusted gross income with some deductions and exclusions added back in. See IRS Publication 590-A, Worksheet 1-1, for complete instructions on figuring MAGI for traditional IRAs

IRS. About Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs). Accessed Apr 17, 2024.

View all sources

Traditional IRA limits in 2024

These income limits apply only if you (or your spouse) have a retirement plan at work.

Filing status	2024 traditional IRA income limit	Deduction limit
Single or head of household (and covered by retirement plan at work)	$77,000 or less.	Full deduction.
	More than $77,000, but less than $87,000.	Partial deduction.
	$87,000 or more.	No deduction.
Married filing jointly (and covered by retirement plan at work)	$123,000 or less.	Full deduction.
	More than $123,000, but less than $143,000.	Partial deduction.
	$143,000 or more.	No deduction.
Married filing jointly (spouse covered by retirement plan at work)	$230,000 or less.	Full deduction.
	More than $230,000, but less than $240,000.	Partial deduction.
	$240,000 or more.	No deduction.
Married filing separately (you or spouse covered by retirement plan at work)	Less than $10,000.	Partial deduction.
	$10,000 or more.	No deduction.

Traditional IRA deduction limits in 2025

Filing status	2025 traditional IRA income limit	Deduction limit
Single or head of household (and covered by retirement plan at work)	$79,000 or less.	Full deduction.
	More than $79,000, but less than $89,000.	Partial deduction.
	$89,000 or more.	No deduction.
Married filing jointly (and covered by retirement plan at work)	$126,000 or less.	Full deduction.
	More than $126,000, but less than $146,000.	Partial deduction.
	$146,000 or more.	No deduction.
Married filing jointly (spouse covered by retirement plan at work)	$236,000 or less.	Full deduction.
	More than $236,000, but less than $246,000.	Partial deduction.
	$246,000 or more.	No deduction.
Married filing separately (you or spouse covered by retirement plan at work)	Less than $10,000.	Partial deduction.
	$10,000 or more.	No deduction.

Should I contribute to a traditional IRA if I can’t deduct it?

contributions can still be valuable: Money for retirement is money for retirement, and your investment earnings will still grow tax-deferred. But this can also be a headache: You are responsible for keeping track of after-tax contributions by filing IRS Form 8606 each year so you’re not taxed again on that money when you take retirement distributions.

In short, there are better options you should max out before going down the nondeductible IRA road. They are:

A Roth IRA, if you’re eligible. These accounts have income eligibility rules, but they are higher than the limits to deduct traditional IRA contributions. See our Roth IRA limits page.
Your employer-sponsored retirement plan. Consider maxing that account out before making nondeductible IRA contributions. That could actually make you eligible for an IRA deduction because your contributions to the workplace plan lower your taxable income for the year.

If after exhausting both of those options, you still want to consider the nondeductible route, see our page on nondeductible IRAs.

Other types of IRAs

The are other popular types of IRAs out there, such as Roth, SEP and SIMPLE. But there are also these types of IRAs: backdoor Roth, spousal, self-directed, inherited and rollover. You can learn more about each of these in our guide to IRAs.

FAQs

Can you lose money in an IRA?

Yes, you can lose money with any investment. If you’re investing in the stock market, there will be times your account balance may dip when the market does what it’s historically done over short periods of time: seesaw between highs and lows. But don’t let that spook you.

Over the long term — which is the investing time horizon you have in your IRA — investing in the stock market gives you the biggest bang for your buck. From a historical standpoint, an investment in an index mutual fund that tracks the returns of 500 of the largest U.S. companies is likely to far outpace what you’d earn investing in Treasury bonds, T-bills or even gold.

The key to ensuring any losses are just temporary is to stay the course. Having a long-term investing time horizon and the temperament to weather the storm is how fortunes are made. Fidelity Investments studied the behavior of about 1.5 million people in workplace retirement plans. It found that investors who continued to invest in stocks even through the 2008-09 market crash ended up 10 years later with account balances about 50% higher than people who sold out of stocks during the downturn.

Are IRAs and 401(k)s the same thing?

No. Both IRAs and 401(k)s are retirement savings accounts, and both offer tax breaks as an incentive to sock away money for your future. But 401(k)s are available only through an employer (in technical IRS language, they're employer-sponsored retirement plans), while an IRA can be set up by any individual who has earned income. Other noteworthy differences:

401(k)s have higher annual contribution limits than IRAs: $23,000 in 2024 versus $7,000 in 2024 for an IRA. In 2025, the IRA limit remains the same but the 401(k) limit increases to $23,500.
Catch-up contribution limits are also beefier in workplace plans: If you’re age 50 or older, the IRS allows you to save an additional $7,500 in a 401(k). The maximum annual catch-up contribution allowed in an IRA is $1,000. (For 2025, Secure Act 2.0 increases the 401(k) catch-up for those those age 60, 61, 62 and 63 to $11,250.)
You have until the tax-filing deadline, usually in April of the following year, to make contributions to an IRA. Contributions to a 401(k) must be made by Dec. 31 in order to qualify for the current tax year.
Some 401(k)s have a vesting period where employees have to wait a certain period of time before they’re allowed to participate in the plan. There’s no vesting period with an IRA.
Some employers sweeten the pot with 401(k)s and kick in their own money to match a portion of what employees save. That extra money may be subject to a vesting period.
Investment offerings in a 401(k) are determined by the plan administrator. In an IRA the choices are much broader: If you choose to open an account at a discount brokerage you can pick from mutual funds, exchange-traded funds (ETFs), stocks and more.

If you’re wondering if it’s better to have a 401(k) or an IRA, here’s some good news: You don’t have to choose. The IRS allows savers to contribute to both an IRA and a 401(k) at the same time. And if you leave your company, you can take the money with you and roll it over into an IRA. (Here’s how to do a rollover IRA.)

If your 401(k) offers an employer match, invest enough to get the full match. After that, direct your retirement savings dollars into a Roth or traditional IRA to take advantage of the more expansive line-up of investments.

Here’s a more detailed take on the IRA vs. 401(k) question, including a simple plan for how to maximize your returns and minimize your costs.

How much money do you need to start an IRA?

Many discount brokers and robo-advisors have $0 minimums to open an IRA. You can see which ones in our roundup of best IRA providers. However, the tax perks of investing in an IRA start only when you start contributing money to the account. But don’t worry: You don’t need to come up with your full contribution all at once. You’re also not required to save the maximum the IRS allows.

You can add money to your IRA at whatever cadence and amount works for your budget. Many brokers and robos allow savers to set up automatic deposits to transfer money from your bank into your account.

The main difference between a traditional IRA and a Roth IRA is when taxes are applied. In a traditional IRA, contributions are tax-deductible while withdrawals made in retirement are taxed. In a Roth IRA, there is no tax benefit received when making contributions. Instead, once you are able to start making qualified withdrawals during retirement, those funds can be taken out of the account tax-free. You're able to have more than one type of IRA, but keep in mind that the annual contribution to all of your IRA accounts cannot exceed the annual limit.

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