Traditional IRA

Traditional IRA

An IRA that is not a Roth IRA or a SIMPLE IRA. Individual taxpayers are allowed to contribute 100% of compensation (Self-employment income for Sole proprietors and partners) up to a specified maximum dollar amount to their Traditional IRA. Contributions to the Traditional IRA may be tax-deductible depending on the taxpayer's income, tax-filing status, and coverage by an employer-sponsored retirement plan.

Notes:

Eventual withdrawals are treated as ordinary income and may be subjected to income tax. However, since your income is likely less once you retire, you may be taxed at a lower rate.

See also: IRA, Roth IRA, SEP, SIMPLE

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Traditional IRA

A tax-deferred individual retirement account that allows annual contributions of up to $2000 for each income earner. Contributions are fully deductible for all individuals who are not active participants in employer-sponsored plans or for plan participants within certain income ranges.