A traditional individual retirement account (IRA) is a special type of account allowing an individual to save and invest pre-tax income without paying taxes until the money is used in retirement.
Contributions are tax-deductible in the year the contributions are made. Anyone can contribute to a traditional IRA but there are certain eligibility requirements to take the tax deductions. Eligibility depends of a few factors including, whether or not you have a work retirement plan (e.g., 401k), tax filing status, and taxable income. For addition detail see the summary table below.
Funds can be invested in a variety of securities such as stocks, bonds, and ETFs. Investments grow tax-deferred. Withdrawals in retirement (after age 59.5) are taxed as ordinary income.
| Deduction eligibility (2019) | Anyone can contribute, but eligibility for deductions is as follows: Single tax filers Full deduction: If not covered by a work retirement plan or if covered by a workplace retirement plan and taxable income is $64,000 or less. Partial deduction: If covered by a workplace retirement plan and taxable income is between $64,000 and $74,000. No deduction for those with over $74,000 in taxable income Married filing jointly Full deduction: If covered by a work retirement plan and taxable income is $103,000 or less or if spouse is covered and taxable income is $193,000 or less. Partial deduction: If covered by a work retirement plan and taxable income is between $103,000 and $123,000 or if spouse is covered and taxable income is between $193,000 and $203,000. No deduction for those who are covered by a work retirement plan with taxable income of $123,000 or more or if spouse is covered and taxable income is more than $203,000. |
| Contribution limits | 2019: $6,000 (or $7,000 for those 50 and older) |
| Withdrawal requirements | Must be 59.5 years old Unqualified early withdrawals are taxed in addition to 10% penalty |
