Traditional IRA

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.

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Traditional IRA

An investment retirement account in which a worker makes tax deductible contributions up to a certain limit throughout his/her working life. Unlike Roth IRAs, contributions are tax deductible but withdrawals are taxed, effectively deferring tax on the account until the worker begins making withdrawals in retirement. Importantly, however, tax deductibility of contributions depends on one's tax bracket. The limit to annual contributions varies by year and is indexed to inflation. Traditional IRAs are allowed to invest in securities and, in practice, normally own common stock and certificates of deposit. See also: 401(k).