A Traditional IRA can be a great way to save for retirement if you desire and qualify for tax deductible contributions to a retirement savings account. Join @GregHammondImpact as he shares a one minute over view of a Traditional IRA and the power of triple compounding.

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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 individual retirement account (IRA) is a type of retirement savings account that offers individuals a tax-advantaged way to save for their retirement. It is a popular option for individuals who want to build a nest egg for their retirement years.

One of the key features of a traditional IRA is that contributions are made on a pre-tax basis, meaning that the money you contribute to the account is not taxed in the year it is contributed. This can result in a lower tax bill in the year of contribution, which can be beneficial for many individuals.

Another benefit of a traditional IRA is that the investment earnings within the account grow tax-deferred. This means that any interest, dividends, or capital gains generated by the investments held within the account are not subject to income tax until they are withdrawn. This allows the account to grow at a potentially faster pace than a taxable investment account.

However, it’s important to note that withdrawals from a traditional IRA are subject to income tax in the year they are taken. Additionally, if withdrawals are made before the age of 59 1/2, there may be an additional 10% early withdrawal penalty imposed by the IRS. There are some exceptions to this penalty, such as using the funds for certain qualified expenses like higher education or a first-time home purchase.

Another important feature of a traditional IRA is that there are annual contribution limits set by the IRS. As of 2021, individuals can contribute up to $6,000 per year, and those aged 50 or older can make an additional catch-up contribution of $1,000 per year. These contribution limits are periodically adjusted to account for inflation.

One potential downside of a traditional IRA is that once an individual reaches the age of 72 (previously 70 1/2), they are required to start taking minimum distributions from the account, known as Required Minimum Distributions (RMDs). This means that the IRS requires individuals to withdraw a certain amount of money from their traditional IRA each year, based on their life expectancy and the account balance. Failure to take RMDs can result in a hefty penalty from the IRS.

In summary, a traditional IRA offers individuals a tax-advantaged way to save for retirement, with potential tax savings in the years of contribution and tax-deferred growth within the account. However, it is important for individuals to be aware of the rules and limitations of traditional IRAs, such as contribution limits, potential early withdrawal penalties, and required minimum distributions. It is always advisable to consult with a financial advisor or tax professional to determine if a traditional IRA is the right option for your retirement savings needs.