Traditional IRA Contribution
Your tax deduction today, your retirement fund tomorrow—here's how Traditional IRAs work and whether they're right for you.
Last Updated: January 2025
Quick Navigation
What's a Traditional IRA?
A Traditional Individual Retirement Account (IRA) is a tax-advantaged retirement savings account. When you contribute, you may get a tax deduction for that year, which means less money owed to the IRS right now.
Your investments grow tax-free in the meantime, and you only pay taxes when you withdraw in retirement—hopefully at a lower rate than you're paying now.
How It Works
Here's what happens to your money from contribution to withdrawal:
Today: Tax Deduction
You contribute $7,000 this year? That might lower your taxable income by $7,000. If you're in the 24% tax bracket, that's roughly $1,680 back in your pocket come tax time.
During: Tax-Free Growth
Your money sits in the IRA investing in stocks, bonds, or funds. Every dollar of profit grows tax-free. No capital gains taxes eating into your returns year after year.
Retirement: Time to Pay Taxes
When you withdraw at age 65, that's when the IRS gets its cut. Every dollar withdrawn counts as ordinary income. But you'll likely be in a lower tax bracket in retirement than you are now.
Age 73: Required Minimum Distributions
At 73, you'll need to start taking Required Minimum Distributions (RMDs) each year or face penalties. Plan ahead to avoid surprises when that time comes.
Example: Meet Sarah
Sarah's a 40-year-old teacher earning $75,000. She contributed $7,000 to her Traditional IRA last year and deducted it from her taxes. In the 22% bracket, that saved her about $1,540 on her tax bill—money she immediately reinvested. Over 25 years at 7% growth, that $7,000 becomes roughly $38,000. By waiting to pay taxes in retirement when she's in a lower bracket, she keeps more of what she earned.
2024 Contribution Limits
How much can you contribute? Here's the rundown for 2024:
Under 50
Maximum annual contribution
Age 50 or Older
Includes $1,000 catch-up contribution
Important Notes
Combined limit: This $7,000 (or $8,000) covers all your IRA accounts together—Traditional and Roth combined. You can't double-dip.
Earned income required: You need actual wages or self-employment income to contribute. Investment income doesn't count.
Tax deadline: You've got until Tax Day (usually April 15) to make last year's contribution.
Spousal IRAs
Here's a benefit many couples miss: even if one spouse doesn't work, they can still contribute to an IRA. This is called a Spousal IRA.
As long as you file taxes jointly and you (the working spouse) earn enough to cover both contributions, your non-working spouse can put away the full $7,000 (or $8,000 if 50+) in their own IRA. That's potentially $14,000-$16,000 total for your household!
Example: The Martinez Family
Carlos earns $90,000 as an engineer. His wife Maria stays home with their two young kids. Under normal rules, only Carlos could contribute to an IRA. But thanks to the spousal IRA provision:
Carlos's Traditional IRA: $7,000
Maria's Spousal IRA: $7,000
Total Family Contribution: $14,000
Tax Deduction (at 22% bracket): ~$3,080 saved
The Rules for Spousal IRAs
You must file jointly. Married Filing Separately doesn't qualify (with very limited exceptions).
The working spouse needs enough income. Your combined contributions can't exceed the working spouse's earned income.
Each spouse has their own account. You can't just dump $14,000 into one IRA—each person needs a separate account in their name.
Age rules still apply. If the non-working spouse is 50+, they get the $1,000 catch-up contribution independently.
Why This Matters
Spousal IRAs recognize that being a stay-at-home parent (or caregiver) is valuable work, even if it doesn't come with a paycheck. The non-working spouse builds their own retirement assets in their name—giving them financial security and independence. Plus, it's a huge tax advantage most families overlook.
Income Limits
Here's where it gets a bit tricky. Anyone can contribute to a Traditional IRA—no income limits there. But whether you can deduct that contribution? That depends on your income and whether you've got an employer retirement plan.
The Big Question: Do You Have a 401(k)?
If you're not covered by an employer retirement plan (like a 401(k) or pension), you can deduct your full Traditional IRA contribution regardless of your income.
But if you are covered by a workplace plan? The IRS puts income limits on your deduction. That's what the table below shows.
Is This Right for You?
Here's when a Traditional IRA makes sense—and when you might want to explore other options:
Traditional IRA Might Be Perfect If...
•You're in a high tax bracket now and expect to be in a lower one in retirement. The upfront deduction saves you big today.
•You want immediate tax relief. That deduction feels good when you file—it's money back in your pocket right now.
•You don't have access to a 401(k) match. No employer plan? Traditional IRA becomes your go-to retirement vehicle.
•You're locked out of Roth IRAs. Income too high for a Roth? Traditional might be your only IRA option.
Think Twice If...
•You're early career or in a low bracket. If you're paying little tax now but expect to earn more later, a Roth IRA (tax-free withdrawals) might beat a Traditional.
•You hate the idea of RMDs. Forced withdrawals at 73 can mess with your retirement plans. Roth IRAs have no RMDs.
•Your employer offers a 401(k) match. Always grab that free money first—it's an instant 50-100% return. Max the match, then consider IRAs.
•You value flexibility. Traditional IRAs lock you in until 59½ (with penalties for early withdrawal). Roth contributions can be withdrawn anytime penalty-free.
The Bottom Line
Traditional IRAs work best when you're earning good money now and expect to live on less in retirement. If that's you, grab that deduction and let your money grow tax-deferred. But if you're young, in a lower bracket, or want more flexibility? A Roth IRA deserves serious consideration. Or do both if you can swing it—tax diversification is smart.
Getting Started
Opening a Traditional IRA is easier than you think. Here's your quick-start guide:
Pick Your Provider
You've got options. Banks, brokerage firms (like Fidelity, Vanguard, Schwab), or robo-advisors (like Betterment, Wealthfront). Each has different fees, investment choices, and interfaces.
Tip: Go with a low-cost provider. High fees eat into your returns over decades. Look for no account minimums and cheap index funds.
Fill Out the Application
It's mostly online these days—takes 10-15 minutes. You'll need your Social Security number, bank info for funding, and basic personal details.
Fund Your Account
Transfer money from your checking account. Set up automatic monthly contributions if you want to stay consistent—it's easier than lump sums.
Choose Your Investments
Don't just let it sit as cash! Pick stocks, bonds, or (easiest option) a target-date retirement fund that auto-adjusts as you age. Not sure what to choose? Target-date funds are great for beginners.
Example: If you plan to retire around 2050, look for a "Target 2050" fund. It handles everything for you.