Are Traditional IRA Contributions Tax-Deductible?
Whether your contributions are deductible depends on your income and whether you or your spouse are covered by a workplace retirement plan. If neither of you has a workplace plan, contributions are fully deductible regardless of income. If you do have a workplace plan, deductibility phases out at certain MAGI thresholds set annually by the IRS.
What Are the Traditional IRA Withdrawal Rules?
You can begin taking penalty-free withdrawals at age 59½. Withdrawals are taxed as ordinary income. If you withdraw before 59½, you'll typically pay a 10% penalty plus income taxes, with some exceptions. Starting at age 73, the IRS requires you to take required minimum distributions (RMDs) each year whether you need the money or not.
How Does a Traditional IRA Compare to a Roth IRA?
The core difference is timing of taxes. With a traditional IRA, you get a potential tax break now and pay taxes on withdrawals later. With a Roth IRA, you pay taxes now and enjoy tax-free withdrawals later. Traditional IRAs also have RMDs; Roth IRAs do not during the owner's lifetime. Your current versus expected future tax rate should guide your choice.
Frequently asked questions
Can I contribute to a traditional IRA if I already have a 401(k)?
Yes, you can contribute to both. However, if you or your spouse participate in a workplace plan, your traditional IRA deduction may be limited or eliminated based on your income. Non-deductible contributions are still allowed up to the annual limit.
What is the deadline for making a traditional IRA contribution?
You can make IRA contributions for a given tax year up until the tax filing deadline — typically April 15 of the following year. This gives you additional time to contribute after the calendar year ends.