Traditional IRA
First Seen: January 2010 · Established: 1974 ERISA Act · Status: Standard retirement account
Overview
Traditional IRA is individual retirement account allowing tax-deductible contributions (up to $6,500 in 2023, $7,500 if 50+) with tax-deferred growth. Withdrawals taxed as ordinary income at retirement.
Key difference from Roth IRA: Tax break now (deduction) vs later (Roth’s tax-free withdrawals)
Contribution Limits & Deductibility
2023 limits: $6,500 ($7,500 if 50+)
Deduction phase-out (2023): If covered by workplace retirement plan:
- Single: $73K-$83K income
- Married: $116K-$136K income
No income limits if NOT covered by workplace plan
Required Minimum Distributions (RMDs)
Must start withdrawals at age 73 (changed from 72 in 2023 SECURE 2.0 Act). RMD amount based on IRS life expectancy tables.
Penalty: 25% of amount not withdrawn (lowered from 50% in SECURE 2.0)
Traditional vs Roth Decision
Choose Traditional if:
- High tax bracket now, expect lower in retirement
- Need tax deduction today
- Maxing out 401(k), want additional tax-advantaged space
Choose Roth if:
- Low/moderate tax bracket now
- Expect higher taxes in retirement
- Want withdrawal flexibility (no RMDs)
Backdoor Roth IRA Connection
High earners (above Roth income limits) contribute to Traditional IRA, then immediately convert to Roth (see #BackdoorRothIRA). This loophole exists because Traditional IRA has no income limits (but deduction may be limited).
Sources
- IRS Traditional IRA guidelines
- r/personalfinance wiki
- Bogleheads Traditional vs Roth analysis