What is Traditional individual retirement account (IRA)?
In short
A traditional individual retirement account (IRA) is a tax-deferred retirement account. Contributions may be deductible, earnings grow tax-deferred and withdrawals are taxed as ordinary income.
Key takeaways
- The deduction phases out at higher incomes if the taxpayer or spouse is covered by a workplace plan.
- Withdrawals before age 59½ are generally subject to a 10% additional tax, with exceptions such as up to $10,000 for a first home.
- Required minimum distributions begin at 73 (or 75 for those born in 1960 or later).
Where it's tested
REG: Retirement Plans & Tax Planning Basics — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
The key tax difference between a traditional IRA and a Roth IRA is that: