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What Is a Traditional IRA? Everything You Need to Know
- A Traditional IRA lets your money grow tax-deferred — you only pay taxes when you withdraw in retirement
- Contributions may be fully or partially tax-deductible, depending on your income and employer plan status
- The 2025 contribution limit is $7,000 ($8,000 if you’re age 50+); the 2026 limit is $7,500 ($8,600 if age 50+)
- Required minimum distributions (RMDs) must begin at age 73
- Early withdrawals before age 59½ are subject to a 10% penalty, with exceptions
What Is a Traditional IRA?
A Traditional IRA (Individual Retirement Account) is a tax-advantaged savings account that allows you to contribute pre-tax or after-tax dollars toward retirement. Your earnings grow tax-deferred, meaning you don’t pay taxes on investment gains until you withdraw the money. If your contributions are tax-deductible, you also reduce your taxable income today
A Traditional IRA is one of the most widely used retirement savings tools in the United States — and for good reason. It offers tax-deferred growth, a potential upfront tax deduction, and the flexibility to invest in a wide range of assets. Whether you’re early in your career or approaching retirement, a Traditional IRA can play an important role in your financial plan.
Who Is Eligible to Open a Traditional IRA?
To contribute to a Traditional IRA, you must meet two requirements:
- You (or your spouse, if you file taxes jointly) must have earned income from employment — such as wages, salaries, self-employment income, or alimony
- Starting with the 2020 tax year, there is no age limit. You can contribute at any age, as long as you have earned income
Even if you participate in a 401(k) or another employer retirement plan, you can still contribute to a Traditional IRA. Employer plan participation only affects deductibility, not eligibility.
Traditional IRA Contribution Limits for 2025 and 2026
The IRS sets annual limits on how much you can contribute to a Traditional IRA (or any combination of Traditional and Roth IRAs). These limits are adjusted periodically for inflation.
| Tax Year | Standard Limit | Age 50+ Catch-Up Limit |
| 2025 | $7,000 | $8,000 |
| 2026 | $7,500 | $8,600 |
Contributions cannot exceed your total annual earned compensation. If you earned $5,000 this year, your IRA contribution limit is $5,000, not $7,000.
Contribution deadline: You have until April 15 (the federal tax filing deadline) to make your IRA contribution for the prior tax year. That means you can still contribute to your 2025 Traditional IRA as late as April 15, 2026.
Can I Deduct My Traditional IRA Contributions?
Whether your Traditional IRA contribution is tax-deductible depends on two factors: (1) whether you or your spouse actively participate in an employer-sponsored retirement plan, and (2) your modified adjusted gross income (MAGI).
- If neither you nor your spouse participates in an employer plan, your full contribution is deductible — regardless of income
- If you or your spouse does participate in an employer plan, deductibility phases out at higher income levels, as shown in the table below
| IRA Owner | Plan Participation | Year | Full Deduction | Partial Deduction | No Deduction |
| Single | Active participant | 2025 | $79,000 or less | $79,001–$89,000 | $89,000+ |
| 2026 | $81,000 or less | $81,001–$91,000 | $91,000+ | ||
| Married, Filing Jointly | Active participant | 2025 | $126,000 or less | $126,001–$146,000 | $146,000+ |
| 2026 | $129,000 or less | $129,001–$149,000 | $149,000+ | ||
| Married, Filing Jointly | Non-active; spouse is active | 2025 | $236,000 or less | $236,001–$246,000 | $246,000+ |
| 2026 | $242,000 or less | $242,001–$252,000 | $252,000+ |
Can’t deduct your contribution? You can still make a nondeductible Traditional IRA contribution and enjoy tax-deferred growth — or you may qualify to contribute to a Roth IRA instead.
Traditional IRA Withdrawal Rules: When and How Can I Take Money Out?
When can I withdraw money from my Traditional IRA?
You can withdraw from your Traditional IRA at any time. However, all withdrawals are subject to ordinary income tax. If you withdraw before age 59½, a 10% early withdrawal penalty typically applies as well — unless you qualify for one of the IRS exceptions listed below.
At what age do required minimum distributions (RMDs) start for a Traditional IRA?
RMDs from a Traditional IRA must begin by April 1 of the year after you turn 73 (for those born after 1950). Each year, the IRS calculates a minimum amount you must withdraw based on your account balance and life expectancy. Failing to take your RMD results in a 25% excise tax on the amount not withdrawn.
What is the 10% early withdrawal penalty for a Traditional IRA?
If you withdraw taxable funds from a Traditional IRA before age 59½, the IRS imposes a 10% penalty tax on the taxable amount, in addition to ordinary income tax. Exceptions exist for specific life circumstances — see the penalty exception table in the Comparison section.
How are Traditional IRA withdrawals taxed?
Traditional IRA withdrawals are taxed as ordinary income in the year you receive them. If you made any nondeductible (after-tax) contributions, a pro-rata portion of each withdrawal will be returned to you tax-free — representing the return of your already-taxed basis.
Rolling Over Retirement Assets Into or Out of a Traditional IRA
A Traditional IRA is one of the most flexible retirement accounts when it comes to rollovers:
- 401(k), 403(b), and most employer plan assets can be rolled over into a Traditional IRA — tax-free if done as a direct rollover
- Traditional IRA assets (pretax portion) can be rolled back into most employer plans, if the plan accepts incoming rollovers
- Traditional IRA assets can be converted to a Roth IRA — though this is a taxable transaction and may increase your tax bill for that year
- After a two-year waiting period, Traditional IRA assets can also be rolled into a SIMPLE IRA
Thinking about converting your Traditional IRA to a Roth? We recommend speaking with a tax advisor first — and we’re happy to connect you with the right resources.
What Happens to My Traditional IRA When I Pass Away?
When you pass, your named beneficiaries inherit your Traditional IRA assets. Any tax-deferred amounts are taxed as they are distributed to beneficiaries as ordinary income. Beneficiaries generally have these options:
- Take a lump-sum distribution (all at once, fully taxable).
- Spread distributions over a period of years (rules vary based on the relationship to the account holder and year of death).
- A spouse beneficiary has the unique option to treat the inherited IRA as their own — delaying distributions and continuing to grow the account.
Frequently Asked Questions: Traditional IRA
What’s the difference between a deductible and nondeductible Traditional IRA contribution?
A deductible contribution reduces your taxable income in the current year — essentially giving you an upfront tax break. A nondeductible contribution does not reduce your taxable income now, but the money still grows tax-deferred. When you withdraw, only the growth (not the original after-tax contribution) is taxed..
Can I have a Traditional IRA and a Roth IRA at the same time?
Yes — you can hold and contribute to both in the same year. Just make sure your combined contributions to all IRAs don’t exceed the annual IRS limit ($7,000 in 2025; $7,500 in 2026).
Can I move money from a Traditional IRA to a Roth IRA?
Yes — this is called a Roth conversion, and it is available to anyone regardless of income. The converted amount is included in your taxable income for the year of the conversion, which can be a significant tax event. Strategic partial conversions in lower-income years can be a smart long-term tax planning tool.
Is there an income limit for contributing to a Traditional IRA?
No — there is no income limit on Traditional IRA contributions. Anyone with earned income can contribute. However, income limits do affect deductibility if you or your spouse participates in a workplace retirement plan.
Ready to Open a Traditional IRA With Citadel?
We’re here to walk you through every step — from understanding your eligibility to making your first contribution. A Traditional IRA is one of the most powerful tools available for building the retirement you deserve. Let’s get started together.
Visit CitadelBanking.com or stop into any branch. We’d love to help you build a brighter financial future.