Most people know they should be saving for retirement. The part that trips them up is figuring out where to actually put the money. Between 401(k)s, brokerage accounts, and what feels like a dozen IRA types, it is easy to feel stuck before you even start.
A traditional IRA is one of the most accessible, tax-efficient retirement accounts available, and you do not need an employer or a financial advisor to open one. This article covers what a traditional IRA is, how the tax treatment works, what the rules are, and how it stacks up against your other options. All contribution limits and thresholds reflect the 2026 IRS guidelines.
By the end, you will know whether a traditional IRA fits your situation and exactly how to open one if it does.
What Is a Traditional IRA?
A traditional IRA is a personal retirement savings account you open entirely on your own, with no employer involvement required. IRA stands for Individual Retirement Account, and the word “traditional” refers specifically to how it is taxed: you may get a tax deduction when you contribute, your money grows tax-deferred while it stays invested, and you pay ordinary income tax on withdrawals in retirement.
The core concept is a straightforward tradeoff. You get a potential tax break today in exchange for paying taxes later. Whether that tradeoff benefits you depends on your current income and what you expect your tax rate to look like when you retire.
How a Traditional IRA Works
The mechanics of a traditional IRA are simpler than most people expect. You contribute money earned from work, invest it inside the account, let it grow over time, and eventually withdraw it in retirement. The tax treatment at each stage is what separates it from a standard brokerage account.
Here is how the process flows from start to finish:
- Contribute: You deposit money from your earned income into the account, up to the IRS annual limit.
- Deduct: If you qualify, you deduct that contribution from your taxable income when you file your federal return.
- Invest: Your money grows inside the account without being reduced by capital gains taxes or dividend taxes each year.
- Withdraw: Starting at age 59½, you take money out and pay ordinary income tax on each withdrawal.
That tax-deferred growth is a bigger advantage than it sounds. When your investments are not being reduced by taxes every year, compounding has more to work with over decades.
Traditional IRA Contribution Limits and Eligibility
To contribute to a traditional IRA, you need to have earned income. Wages, salary, freelance income, and self-employment income all count. Investment income, Social Security benefits, and pension payments do not.
For 2026, the IRS raised the annual IRA contribution limit to $7,500, up from $7,000 in 2025. If you are 50 or older, you can add an extra $1,100 as a catch-up contribution, bringing your total to $8,600.
One important distinction: unlike a Roth IRA, a traditional IRA has no income ceiling that blocks you from contributing. High earners are welcome. Your income level affects whether your contribution is tax-deductible, not whether you can contribute at all.
You also have until the tax filing deadline, typically April 15, to make a prior-year contribution. That means if you want to reduce your 2025 taxable income, you have until April 15, 2026, to fund your IRA and have it count.
See also: 8 Best IRA Accounts for 2026
Will Your Contribution Be Tax-Deductible?
This is where most people get confused, so it is worth slowing down. Whether your traditional IRA contribution is fully deductible, partially deductible, or not deductible at all depends on two things: whether you or your spouse have access to a workplace retirement plan like a 401(k), and how much you earn.
If neither you nor your spouse is covered by a workplace retirement plan, your entire contribution is deductible regardless of your income. If you do have access to a workplace plan, the IRS starts phasing out your deduction once your modified adjusted gross income (MAGI) crosses certain thresholds.
Here is how the 2026 phase-out ranges break down:
- Single filers covered by a workplace plan: Full deduction up to $81,000 MAGI, partial deduction from $81,000 to $91,000, no deduction above $91,000.
- Married filing jointly, contributing spouse covered by a workplace plan: Full deduction up to $129,000 MAGI, partial deduction from $129,000 to $149,000, no deduction above $149,000.
- Married filing jointly, contributor not covered but spouse is: Full deduction up to $242,000 MAGI, partial deduction from $242,000 to $252,000, no deduction above $252,000.
Even if you do not qualify for a deduction, contributing to a traditional IRA can still make sense. Your money still grows tax-deferred, which is an advantage you will not get in a regular taxable brokerage account. This strategy is sometimes called a non-deductible IRA contribution, and it is worth discussing with a tax professional before you go that route.
Traditional IRA Rules You Need to Know
A traditional IRA comes with a specific set of IRS rules, and knowing them upfront will save you from costly mistakes. The three most important ones involve early withdrawals, required distributions, and what you can actually invest in.
The Early Withdrawal Penalty
If you pull money out of your traditional IRA before age 59½, you will owe income tax on the amount plus a 10% early withdrawal penalty. That combination can take a significant bite out of your balance, which is why these accounts are designed for long-term retirement savings and not short-term needs.
The IRS does provide exceptions where the 10% penalty is waived. Keep in mind that income tax still applies in most of these cases, even when the penalty is lifted:
- First-time home purchase: Up to $10,000 lifetime from an IRA can be withdrawn penalty-free.
- Qualified higher education expenses: For you, your spouse, or your dependents.
- Permanent disability: If you become totally and permanently disabled.
- Substantially equal periodic payments: Under IRS Rule 72(t), you can take a structured series of equal withdrawals without triggering the penalty.
- Unreimbursed medical expenses: For amounts exceeding 7.5% of your adjusted gross income.
- Health insurance premiums: If you are unemployed and receiving federal or state unemployment compensation.
Required Minimum Distributions
You cannot leave money in a traditional IRA indefinitely. Starting at age 73, the IRS requires you to withdraw a minimum amount each year. These mandatory withdrawals are called Required Minimum Distributions, or RMDs, and the amount you must take is calculated based on your account balance and IRS life expectancy tables.
Missing an RMD carries a steep penalty. The IRS charges a 25% excise tax on the amount you were supposed to withdraw but did not. If you catch and correct the mistake quickly, that penalty can drop to 10%, but putting an annual reminder on your calendar is a much better strategy than hoping you remember.
What You Can Invest In Inside a Traditional IRA
A traditional IRA is not a single investment product. It is an account that holds investments, and the options available to you depend on which brokerage or financial institution you choose.
Most major brokerages allow you to invest your IRA funds in stocks, bonds, mutual funds, ETFs, index funds, CDs, and REITs. The account gives you a wide investment menu, which is one of the reasons many people prefer an IRA over a 401(k) when they want more control over how their money is invested.
Traditional IRA vs. Roth IRA: Which One Is Right for You?
Both a traditional IRA and a Roth IRA are individual retirement accounts, but they are taxed in opposite directions. With a traditional IRA, you get a potential deduction now and pay taxes on withdrawals later. With a Roth IRA, you pay taxes now and your qualified withdrawals in retirement are completely tax-free.
Here is a side-by-side comparison of the key differences:
| Feature | Traditional IRA | Roth IRA |
|---|---|---|
| Tax break timing | Now (possible deduction) | Later (tax-free withdrawals) |
| Withdrawals taxed in retirement? | Yes | No |
| Income limits to contribute? | No | Yes |
| Required Minimum Distributions? | Yes, starting at age 73 | No |
| Best if… | You expect a lower tax rate in retirement | You expect a higher tax rate in retirement |
A practical rule of thumb: if you are early in your career and currently in a low tax bracket, a Roth IRA tends to win because you lock in a low tax rate now and withdraw tax-free later.
If you are in your peak earning years and your current tax bill is high, a traditional IRA tends to be the stronger choice because reducing taxable income today is worth more. When you are unsure, some people split contributions between both account types to hedge against future tax changes.
Traditional IRA vs. 401(k): Do You Need Both?
A 401(k) is an employer-sponsored retirement plan, while a traditional IRA is one you open and manage on your own. The contribution limits are completely separate, meaning what you put into one has no effect on what you can contribute to the other.
For 2026, the 401(k) contribution limit is $24,500, or $32,500 if you are 50 or older. That is significantly higher than the $7,500 IRA cap. However, an IRA gives you something a 401(k) often cannot: a much wider selection of investment options. Most 401(k) plans limit you to a curated menu of mutual funds, while an IRA lets you invest in almost anything available at your brokerage.
A common sequencing strategy that many financial planners recommend goes like this:
- Step 1: Contribute to your 401(k) up to the full employer match. Walking away from a match is leaving free money behind.
- Step 2: Max out your IRA. Take advantage of the broader investment choices and additional tax-advantaged space.
- Step 3: Return to your 401(k) and contribute more if your budget allows.
This order gives you the employer match first, then uses the IRA’s flexibility before going back to the 401(k) for any remaining contributions.
Who Should Open a Traditional IRA?
A traditional IRA works well for a broad range of people, but it is not automatically the best choice for everyone. The key is matching the account type to your current tax situation and what you expect in retirement.
A traditional IRA is likely a strong fit if any of the following apply to you:
- No workplace plan: You are self-employed, a freelancer, or your employer does not offer a 401(k) or similar plan.
- High current income: You are in a peak earning year and want to lower your taxable income before April 15.
- Lower expected retirement income: You expect to be in a lower tax bracket in retirement than you are today, which means paying taxes later costs you less.
- Maxed-out 401(k): You have already contributed the maximum to your workplace plan and want additional tax-advantaged space.
- Spousal IRA: Your spouse earns little or no income, but you want to contribute on their behalf. A spousal IRA allows this as long as you file taxes jointly and the contributing spouse has enough earned income to cover both contributions.
How to Open a Traditional IRA in 5 Steps
Opening a traditional IRA takes roughly 15 minutes and requires no prior investment experience. The process is largely the same across major brokerages, and there is no minimum balance required at most of the top providers.
Here is how to get started:
- Step 1: Choose a brokerage. Well-known options include Fidelity, Vanguard, Charles Schwab, and Betterment. Look for no account minimums, low or no trading fees, and access to low-cost index funds.
- Step 2: Select your account type. When prompted during the application, choose “Traditional IRA.”
- Step 3: Fund your account. You can make a lump sum deposit or set up recurring automatic contributions throughout the year.
- Step 4: Choose your investments. Do not leave your money sitting in cash. Select the funds or assets you want to hold inside the account.
- Step 5: Set a contribution reminder. You have until April 15 to make a contribution for the prior tax year, so a calendar alert helps you maximize every year’s opportunity.
Conclusion
A traditional IRA is one of the most straightforward tools available for building retirement savings while reducing your tax bill today. You get potential upfront deductions, years of tax-deferred compounding, and full control over how your money is invested. The tradeoff is paying income tax on withdrawals later, which works in your favor if your tax rate drops in retirement.
The decision really comes down to three things: whether you are eligible, whether your contributions will be deductible, and which brokerage gives you the best investment options at the lowest cost.
If you checked the boxes in the “who should open a traditional IRA” section above, opening one before April 15 is one of the more impactful financial moves you can make this year. Start small if you need to. The important part is getting the account open and the money working.