Traditional IRAs (Individual Retirement Accounts) allow individuals to deposit pre-tax dollars into a retirement account where investments grow tax-deferred until they are withdrawn at the time of retirement.
Upon retirement, withdrawals are taxed at the IRA holder’s current income tax rate. Capital gains or taxes on dividends are not assessed.
There are contribution limits ($6,000 for 2021 and 2022 for those under 50, $7,000 for those aged 50 and over) and mandatory minimum distributions (RMD) must start at age 72.
Unconditional withdrawals from a traditional IRA under age 59.5 are subject to income tax in addition to a 10% penalty.
Unlike Roth IRA contributions, traditional IRA contributions are deductible from your current taxable income.