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Traditional IRA

Traditional IRA

The Original Retirement Account

The traditional Individual Retirement Account (IRA) is a personal savings plan that gives you tax advantages for setting aside money for retirement. Contributions you make to a traditional IRA may be fully or partially deductible, depending on your circumstances. The traditional IRA allows for a $3,000 annual contribution ($5,000 for individuals who are 50 years or older) from pre-tax dollars. There is no taxable event at the time of the contribution. Distributions are taxed based on income bracket of the IRA holder.

When is a traditional IRA advantageous?

Traditional IRA contributions should be utilized, and are available, when an individual does not have an employer-sponsored 401K. The primary focus of the IRA is to provide you with a vehicle for growing your wealth in a tax-deferred environment. Your current age and the amount of time you anticipate you will have to accumulate retirement wealth should determine the aggressiveness of your retirement strategy.

Self-directing your IRA will enable you to take full advantage of market trends and unique opportunities. The chart below shows the annualized return on a typical IRA contribution based on varying rates of return.

Which is better for you—Traditional IRA or Roth IRA?.