Traditional IRA

A traditional IRA lets you defer tax. Contributions may be deductible in the year you make them, the balance grows without annual tax on gains, and you pay ordinary income tax on withdrawals in retirement.

Deductibility depends on your income and whether you or a spouse is covered by a workplace retirement plan. If you are covered and earn above the phase-out range, you can still contribute — the contribution is simply not deductible.

Withdrawals before age 59½ generally incur a 10% penalty plus income tax, with narrow exceptions for things like a first home purchase or qualified education expenses.

Required minimum distributions begin in your early seventies, forcing taxable withdrawals whether you need the money or not — a meaningful contrast with a Roth IRA, which has none.

The traditional-versus-Roth choice comes down to whether you expect a lower tax rate in retirement than today. Deduct now if yes; pay now if no.