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the opportunity to defer the payment of federal income taxes on the growth of money placed into the account until withdrawn.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 Earnings are allowed to accrue to these accounts free from income taxes until withdrawn.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

Are You a Financial Disaster? The Real State of Your Finances
Have you ever heard the saying, “If you don’t have a goal, then you’ll wind up hitting it with amazing accuracy.”? In other words, if you have no idea where you want to be in your future life, then it really doesn’t matter what you do because wherever you end up will match your goal…which apparently was never important enough for you to think about in the first place.
March 13th, 2024
11 Steps to Transform Your Finances (For Good This Time!!)
The money comes in…the money goes out…and at the end of each month you have very little to show for all your efforts. Then, after buckling down for a bit and saving here and there, it feels like you’ve gained a little traction…until another unexpected bill comes along and takes your bank account down to nothing (or probably more likely, racks your credit card back up to the max instead of down to zero like you were fighting for). It’s time to change this. Now is the time to transform your finances.
March 11th, 2024
5 Kiyosaki Hacks to Make You Rich: Are You Missing Out?
Have you ever considered the way you think about money could be the key to building your wealth?
February 22nd, 2024
50/30/20 Budget Spreadsheet: How To Use the 50/30/20 Rule
Do you ever run out of money before the end of the month? Or stare in disbelief at your dwindling balance and wonder where it’s all gone?
February 26th, 2024
Joe Biden’s Net Worth in 2024: President’s Path to a Millionaire
Although estimates vary, Forbes most recently put the US president’s net worth at $10 million — less than one-quarter of the $41 million some Republican supporters claimed the president was worth. Biden’s net worth had gone up since he assumed office, but rather than a pay increase, Forbes’s analysts say it had to do with his real estate portfolio growing in value in recent years.
January 31st, 2024

Contributors

Moneyzine 2024. All Rights Reserved.