Traditional IRA
A retirement account where contributions may be tax-deductible now and withdrawals are taxed as ordinary income later.
What Traditional IRA means
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.
Related terms
Roth IRA
A retirement account funded with after-tax dollars where qualified withdrawals, including all growth, come out tax-free.
401(k)
An employer-sponsored retirement account that lets you invest part of your paycheck before taxes, often with a matching contribution.
Required Minimum Distribution (RMD)
The amount the IRS obliges you to withdraw from tax-deferred retirement accounts each year once you reach the qualifying age.
Annuity
An insurance contract that converts a lump sum into a stream of payments, typically for retirement income you cannot outlive.
HSA (Health Savings Account)
A tax-advantaged account paired with a high-deductible health plan, where contributions, growth, and medical withdrawals are all untaxed.
Marginal Tax Rate
The rate applied to your next dollar of income — the number that matters for almost every tax decision at the margin.
Run the numbers
Retirement Calculator (401k & Roth IRA)
Project your retirement balance with employer match and compound growth, and compare Traditional vs. Roth after-tax outcomes.
Income Tax Calculator (Federal Brackets)
Estimate your U.S. federal income tax, marginal and effective rates, and take-home pay — with a bracket-by-bracket breakdown of how your income is taxed.
FIRE Calculator
Find your FIRE number, how many years until financial independence, and the age you could retire early — based on your savings rate and returns.
Free newsletter
Get smarter about money — every week
Join thousands of readers who receive our carefully curated analysis on personal finance, investing, and economic trends.
No spam. Unsubscribe anytime. We never sell your data.