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A traditional IRA (individual retirement account) is a retirement investment account that accepts pre-tax or post-tax contributions, lets your money grow tax deferred, and may lower your current tax bill if you qualify for the deduction.
Traditional IRAs offer upfront tax benefits, like a possible deduction, tax-deferred growth, flexible investment choices, and penalty-free withdrawals for certain expenses, but they come with tradeoffs, like taxable withdrawals in retirement, early withdrawal penalties, mandatory withdrawals starting at 73, and deduction limits if you also have a workplace plan.
Anyone with earned income can contribute to a traditional IRA regardless of age.
For 2026, you can contribute up to $7,500 if single and up to $15,000 if married filing jointly (plus a catch-up amount if you're 50 or older).
Withdrawals from a traditional IRA are taxed at your regular income tax rate, and withdrawals before age 59½ generally trigger an additional 10% penalty.
You're required to start taking required minimum distributions (RMDs) at age 73, and failing to withdraw the full required amount can trigger a steep tax penalty on the shortfall.
Traditional and Roth IRAs both help you save for retirement, but they differ in when you get the tax benefit, whether withdrawals are taxed, and whether RMDs are required.
Traditional IRAs and 401(k)s differ in eligibility, contribution limits, employer contribution options, tax treatment, and investment flexibility.
How you report traditional IRA contributions depends on whether they're deductible, and you shouldn't wait for Form 5498 to file, since it often arrives after the tax deadline.
Want to save more for retirement while reducing your taxes? Of course you do. It’s time to discover the benefits of a traditional IRA.
What is a traditional IRA?
A traditional IRA (individual retirement account) is an investment account with specific tax benefits designed to help you save more for retirement. You can contribute pre-tax, post-tax, or a combination of both to a traditional IRA.
If your income is below the annual income limit for the year, you can usually reduce your tax by deducting all, or a portion, of your annual contributions.
Because you won’t pay tax on any earnings in your IRA until you withdraw money, your savings have the potential to grow tax deferred until you retire. Since your income is likely to be lower in retirement, you’ll probably get taxed at a lower rate than you would today.
Post-tax contributions are taxed the year you contribute them, so they are generally not taxed when you withdraw them.
Pros and cons of a traditional IRA
The biggest pros of a traditional IRA are the immediate tax benefits. You can make contributions tax free, which encourages you to contribute more upfront and enjoy tax-deferred growth for longer. However, you must pay tax when you make withdrawals.
Tax benefits of a traditional IRA
- You may get an income tax deduction: If you meet the IRS income limits, you can deduct all or part of your annual IRA contributions from your taxable income. This may lower your tax bill or increase your refund.
- Your investments can grow tax deferred: You don’t pay taxes on any earnings from your pre-tax contributions until you withdraw the money. This can help your savings grow more than it would if you were paying taxes along the way.
- You can invest your money how you want: The IRS lets you invest your money in stocks, bonds, mutual funds, exchange-traded funds (ETFs), and even CDs.
- Contribute up to your earned income amount: You can contribute to a traditional IRA up to the annual limit and up to the amount of your earned income (income you get from a job, including wages, salaries, tips, bonuses, and self-employment income).
- You can use the money for education or a new home before you retire: While the traditional IRA is intended for retirement savings, you are allowed to withdraw money penalty free for certain life events or “hardships,” including qualified education expenses or purchasing your first home (usually a max of $10,000).
Downsides of a traditional IRA
- You pay taxes in retirement: While your contributions are tax free, you must pay tax on your withdrawals down the road when you retire at your regular income tax rate.
- You must pay a penalty for early withdrawals: Apart from a select few situations, if you make a withdrawal from your traditional IRA before you’re 59½, you’ll face a 10% penalty from the IRA, in addition to income tax.
- You must start making withdrawals at 73: The year you turn 73, required minimum distributions (RMDs) are mandatory, whether you need the income at that time or not.
- Your contributions may not be deductible at certain MAGI levels if you have a workplace plan: If you’re single and have a workplace plan, your deduction starts phasing out at a modified adjusted gross income (MAGI) of $81,000, and if you’re filing jointly, your deduction starts phasing out at a MAGI of $129,000.
Who can contribute to a traditional IRA?
Anyone at any age who has earned income can contribute to a traditional IRA.
Traditional IRA contribution limits for 2026
The maximum amount you can contribute for 2026 is $7,500 if you’re single, and $15,000 if married filing jointly. If you’re 50 or older, you can contribute up to $1,000 more.
Whether or not your contributions are deductible depends on your filing status, MAGI, and whether you have a workplace retirement plan, like a 401(k). If you do have a workplace retirement plan, your deductions start phasing out at certain MAGI limits.
If you’re single and your MAGI is less than $81,000, you can deduct all IRA contributions from your taxable income. At $81,000, your contributions are partially deductible, and at $91,000, your contributions are no longer deductible.
If you’re married filing jointly, your contributions are fully deductible at a MAGI of less than $129,000. At $129,00, your contributions are partially deductible, and at and above $149,000, they are no longer deductible.
Traditional IRA withdrawal rules and early withdrawals
When you make withdrawals from a traditional IRA, it’s subject to income tax at your regular rate. Early withdrawals (those made before you are at least 59½ years old) are also subject to a 10% IRS penalty.
Some plans offer early access to funds for certain events or hardships, like buying a first-time primary residence, preventing eviction or foreclosure, funeral costs, tuition fees, etc. However, the distribution is taxed at your regular rate, but the 10% penalty does not apply.
Required minimum distributions (RMDs) for traditional IRAs
RMDs are the minimum amount that you must withdraw each year from your traditional IRA, starting when you reach the age of 73. However, there is an exception for the first year. If you choose, you can delay RMDs until April 1 of the following year. From there, you must take RMDs every year by December 31.
If you fail to take RMDs, or you don’t take the full required amount, the amount you should have withdrawn will be subject to a 25% tax penalty. You may qualify for a lesser penalty of 10% if you correct the issue within a 2-year period or qualify for a waiver of penalty for reasonable cause.
Traditional IRA vs. Roth IRA
A Roth IRA is another type of individual retirement account with its own unique structure and advantages. Both accounts can help you save for retirement. There are three important differences:
- Tax benefits today: You may be able to take a tax deduction for your traditional IRA contributions. However, you cannot deduct contributions to a Roth IRA.
- Tax benefits in retirement: Withdrawals from a traditional IRA are fully or partially taxable. Withdrawals from a Roth IRA are completely tax free.
- RMDs: Taxpayers who are 73 or older must start (or continue) taking RMDs from their traditional IRAs even if they are still working. RMDs are not required with a Roth IRA.
Traditional IRA vs. 401(k)
| Traditional IRA | Traditional 401(k) | |
|---|---|---|
| Eligibility | Available to everyone with earned income regardless of age | Only available through an employer regardless of age |
| 2026 contribution limits | Up to $7,500 if you are under age 50, and an additional $1,000 if you are age 50 or older | Up to $24,500 if you are under age 50, and an additional $8,000 if you are age 50 or older or an additional $11,250 if you are 60 to 63 |
| Employer contributions | Not available | Employers combined with employee’s contributions can contribute up to $72,000 ($80,000 if 50 or older, $83,250 if 60 to 63) |
| Tax benefits | Contributions to a traditional IRA may be tax deductible, depending on your income level and participation in an employer plan | Your contributions to a 401(k) are typically withheld from your taxable income by your employer, effectively reducing your tax burden. Employer contributions are also not added to taxable income. |
| Investment choices | Usually flexible, with access to a wide range of assets. | Usually flexible, but depends on the plan administrator’s available options. |
How to report traditional IRA contributions on your tax return
How you report traditional IRA contributions depends on whether they are deductible or not. Report deductible contributions on Schedule 1 of Form 1040, U.S. Individual Income Tax Return. Report non-deductible contributions on Form 8606 Nondeductible IRAs.
Do not wait to receive Form 5498, IRA Contribution Information, from your plan administrator, as they are not required to send it out until May 31 of the following year, well after the April 15 deadline to file.
A traditional IRA is a fantastic option for saving for retirement, but the rules can be complicated. If you have questions or concerns about your traditional IRA and how your contributions or distributions are taxed, don’t hesitate to reach out. Your local Jackson Hewitt Tax Pro is ready to help all year long. Find tax services near you, then walk in or book now.
About the Author
Sharon Brucker is a Senior Tax Research Analyst at Jackson Hewitt Tax Services who specializes in consumer income tax and estate and trust issues. A Certified Public Accountant (CPA) with a Master of Business Administration (MBA) and more than 35 years of experience, Sharon helps to ensure that the most current IRS tax information is distributed throughout Jackson Hewitt and its franchisees. She also simplifies complex tax laws for Tax Pros and clients alike.
*This content is for general informational purposes only. It is not intended to be comprehensive and should not be construed as professional tax or financial advice for any specific individual tax situation. Taxpayers should always consult a qualified professional for individual guidance. This information constitutes a solicitation under the Treasury Department's Circular 230. Most offices are independently owned and operated.
