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In this video I’ll explain what a Traditional IRA is, who they’re for, when to contribute, and where, why, and how to open one in 2024.

// TIMESTAMPS:

00:00 – Intro
00:07 – What Is a Traditional IRA?
00:31 – Who Can Contribute To a Traditional IRA?
00:43 – How Does a Traditional IRA Work?
02:11 – Traditional IRA Investments
02:27 – When To Contribute To a Traditional IRA
02:52 – Traditional IRA Income and Contribution Limits for 2024
03:51 – Recap
04:09 – Traditional IRA Advantages
04:22 – Traditional IRA Disadvantages
04:37 – How To Open a Traditional IRA
04:57 – Outro

// SUMMARY:

A Traditional IRA is simply a U.S. retirement savings vehicle by which investors contribute pre-tax income, that money grows tax-deferred, and the withdrawals later in retirement are taxed as ordinary income.

The Traditional IRA was established in 1974 by the Employee Retirement Income Security Act. IRA stands for individual retirement account. As the name suggests, this is an account designed to help individuals save for retirement.

The main function of the Traditional IRA is that contributions are made with pre-tax dollars (in most cases they are tax-deductible), those contributions are allowed to grow tax-deferred, and withdrawals later in retirement are taxed as ordinary income. In other words, contributions to a Traditional IRA are taxed on the back end and not on the front end.

You have a wide variety of things you can invest in inside a Traditional IRA, including mutual funds, ETFs, stocks, bonds, money market funds, certificates of deposit (CDs), cryptocurrency, and more. You can even hold investment real estate in a Traditional IRA.

Advantages of the Traditional IRA include a variety of investment options, no income limit to open the account, possible current-year tax deductions for contributions, tax-deferred growth, and a good choice for those in a lower tax bracket in retirement. Disadvantages of the Traditional IRA include withdrawals being taxed as ordinary income, taxes and penalties on early withdrawals, RMD’s after age 73, reduced deduction eligibility for high income earners, and a low contribution limit compared to a 401k.

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Disclaimer: This is not financial advice, investing advice, or tax advice. The information presented is for informational, educational, and entertainment purposes only. Investment products discussed are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here:

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LEARN MORE ABOUT: IRA Accounts

INVESTING IN A GOLD IRA: Gold IRA Account

INVESTING IN A SILVER IRA: Silver IRA Account

REVEALED: Best Gold Backed IRA

A Traditional IRA, or Individual retirement account, is a tax-deferred retirement savings account that individuals can contribute to in order to save for their retirement. In this article, we will explain what a Traditional IRA is and how it works in just 5 minutes.

What is a Traditional IRA?
A Traditional IRA is a retirement account that allows individuals to make pre-tax contributions to their account. This means that the money you contribute to a Traditional IRA is not taxed until you withdraw it in retirement. This can provide individuals with a tax break in the year they make the contribution, as their taxable income is reduced by the amount of their contribution.

How does a Traditional IRA work?
Individuals can contribute up to a certain amount to their Traditional IRA each year, depending on their age and income level. For the year 2024, the contribution limit is $6,000 for individuals under 50 years old, and $7,000 for individuals 50 years old and above. These limits are subject to change each year, so it’s important to check the current limits before making contributions.

Once funds are contributed to a Traditional IRA, they can be invested in a variety of investment options such as stocks, bonds, mutual funds, and certificates of deposit. Over time, these investments can grow and compound tax-deferred, allowing individuals to potentially grow their retirement savings faster than if they had to pay taxes on investment gains each year.

When can I withdraw money from a Traditional IRA?
Withdrawals from a Traditional IRA can be made penalty-free once an individual reaches the age of 59 ½. These withdrawals are subject to ordinary income tax, as the money was contributed pre-tax. If an individual withdraws funds before age 59 ½, they may be subject to a 10% early withdrawal penalty in addition to income tax on the amount withdrawn.

Additionally, individuals must start taking Required Minimum Distributions (RMDs) from their Traditional IRA once they reach age 72. RMDs are calculated based on an individual’s life expectancy and the balance of their IRA account. Failure to take RMDs when required can result in a hefty penalty from the IRS.

Who is eligible for a Traditional IRA?
Individuals under the age of 70 ½ who have earned income are eligible to contribute to a Traditional IRA. There are also income limits for individuals who are covered by a retirement plan at work. Individuals who do not have access to a retirement plan at work can contribute to a Traditional IRA regardless of their income level.

In conclusion, a Traditional IRA is a tax-deferred retirement account that allows individuals to save for retirement while receiving potential tax benefits. By understanding how a Traditional IRA works and the rules surrounding contributions and withdrawals, individuals can make informed decisions about their retirement savings. It’s important to consult with a financial advisor to determine if a Traditional IRA is the right choice for your retirement goals.