Traditional IRA: Complete Guide to Rules, Benefits and Eligibility 2025
A traditional IRA is an individual retirement account allowing pretax contributions that may be tax-deductible, depending on eligibility. Withdrawals during retirement are subject to income tax.
IRA benefits and savings comparison chart
Traditional IRAs work by letting account owners invest pretax dollars for retirement. Key features include:
- 2025 contribution limit: $7,000 ($8,000 if age 50+)
- Must have earned income to contribute
- Withdrawals allowed penalty-free at age 59½
- Required minimum distributions start at age 73
Major Benefits:
- No income limits for opening/contributing
- Tax-deferred investment growth
- Possible tax deductions on contributions
- Can use funds for qualified college expenses without penalty
- Up to $10,000 allowed for first-time home purchase
Key Limitations:
- Early withdrawal penalties before age 59½ (10% plus taxes)
- Required minimum distributions at age 73
- Income limits may affect tax deduction eligibility
- Withdrawals taxed as regular income
Eligibility for tax deductions depends on:
- Whether you have a workplace retirement plan
- Your modified adjusted gross income (MAGI)
- Filing status
2025 Income Limits for Tax Deduction (if covered by workplace plan):
- Single/Head of Household: Full deduction under $79,000; partial $79,000-$89,000
- Married Filing Jointly: Full under $126,000; partial $126,000-$146,000
- Married (spouse covered): Full under $236,000; partial $236,000-$246,000
Opening a Traditional IRA:
- Choose between self-directed (online broker) or managed (robo-advisor) investing
- Select a provider
- Fund the account
- Choose investments based on your strategy
Alternative IRA Types:
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Backdoor Roth
- Spousal IRA
- Self-directed IRA
- Inherited IRA
Even if you can't deduct contributions, consider:
- Maxing out Roth IRA if eligible
- Maximizing employer-sponsored retirement plans
- Tracking non-deductible contributions with Form 8606
Traditional IRAs can be held alongside other retirement accounts like 401(k)s, though total contribution limits apply. Consider your complete retirement strategy when choosing between account types.