This video is intended to introduce some of the basic concepts of a Traditional IRA. #TexasHillCountryAdvisors #FinancialLiteracy
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When it comes to retirement savings, there are a few different options available to individuals. One popular choice is the Traditional IRA, or Individual retirement account. This type of account is a tax-deferred retirement savings plan, which allows individuals to make contributions that are deductible on their taxes.

The Traditional IRA was first introduced in the United States in the mid-1970s, as a way to encourage individuals to save for retirement. Since then, it has become a popular option for many Americans. In fact, according to the Investment Company Institute, as of December 2018, there were over 25 million Traditional IRA accounts in the US, with total assets of over $3.1 trillion.

So, how does a Traditional IRA work? First, it’s important to understand the tax benefits of this type of account. When an individual makes a contribution to their Traditional IRA, they may be able to deduct that contribution from their taxable income. For example, if someone earns $50,000 per year and contributes $5,000 to their Traditional IRA, they may only have to pay taxes on $45,000 of their income that year. This can result in significant tax savings.

However, it’s important to note that the money deposited into a Traditional IRA is not taxed when it is contributed. Instead, taxes are deferred until the money is withdrawn. This means that when an individual reaches retirement age (currently 59 ½), they can begin to withdraw money from their Traditional IRA, but those withdrawals will be subject to income tax.

It’s also worth noting that there are certain rules and limitations to Traditional IRA contributions. For example, in 2021, the maximum contribution amount for individuals under the age of 50 is $6,000. For individuals over the age of 50, there is a “catch-up” contribution limit of an additional $1,000 per year.

Additionally, there are income limits for those who want to contribute to a Traditional IRA. For 2021, individuals who earn more than $140,000 per year (or $208,000 for married couples filing jointly) are not eligible to make deductible contributions to a Traditional IRA. However, they may still be able to make non-deductible contributions.

Overall, the Traditional IRA can be a great option for those looking to save for retirement while reducing their tax bill in the process. However, it’s important to carefully consider the rules and limitations of this type of account before making contributions. Consulting with a financial advisor can also be helpful in determining the right retirement savings strategy for individual needs and goals.