If you’re looking for a tax-advantaged way to save for retirement, a traditional IRA (Individual Retirement Account) might be on your radar. But what exactly is a traditional IRA, how does it work, and what should you consider before opening one?
This comprehensive guide will walk you through the essentials, advantages, drawbacks, and practical steps to get started—all with a focus on U.S. investors.
Traditional IRAs are retirement accounts that let you invest funds and pay tax when you withdraw for retirement.
Traditional IRAs have limits on how much you can contribute in a year, when you can take out your money without a penalty, and who qualifies for tax breaks.
You can open a traditional IRA at a brokerage, bank, or robo-advisor. Depending on your plan, you can invest in the stock market, buy bonds, or purchase CDs.
A Traditional IRA (Individual Retirement Account) is a type of investment account designed to help you save for retirement while deferring taxes. Contributions to a Traditional IRA are often tax-deductible, meaning they can reduce your taxable income for the year. The funds in the account grow tax-deferred, and you won’t owe taxes on your investments until you withdraw them during retirement.
Traditional IRAs differ from Roth IRAs in how they handle taxes. While Traditional IRAs use pre-tax dollars, Roth IRAs are funded with post-tax dollars, allowing for tax-free withdrawals in retirement. Traditional IRAs may be more suitable for individuals who expect their tax rate to stay the same or decrease in retirement, whereas Roth IRAs are often better for those who anticipate a higher tax rate later in life.
A Traditional IRA can provide a flexible way to save for retirement while potentially offering tax advantages, depending on your circumstances. Here are some reasons why you might want to learn more about this type of account:
If you meet certain requirements, your contributions to a Traditional IRA may be tax-deductible, which could reduce your taxable income for the year you contribute.
Earnings such as interest, dividends, and capital gains within a Traditional IRA are not taxed until you withdraw the funds, allowing your investments to grow without immediate tax impact.
Traditional IRAs typically allow you to invest in a wide variety of assets, including stocks, bonds, mutual funds, and exchange-traded funds (ETFs).
You can contribute to a Traditional IRA even if you do not have access to a 401(k) or another employer-sponsored retirement plan, as long as you have earned income.
If you leave a job or retire, you may be able to roll over assets from certain workplace retirement plans into a Traditional IRA, which can help you keep your retirement savings consolidated.
As with any financial decision, it’s essential to consider your situation and review the latest IRS rules or consult with a qualified professional before making contributions.
Here’s a breakdown of how a Traditional IRA typically operates:
Anyone with earned income is eligible to open a traditional IRA. However, the tax deductibility of your Traditional IRA contributions depends on your income and whether you or your spouse has a retirement plan through work:
| Filing status | Full deduction MAGI | Partial deduction MAGI | No deduction MAGI |
| Single/Head of Household (covered) | ≤ $79,000 | $79,001 – $89,000 | ≥ $89,000 |
| Married Filing Jointly (covered) | ≤ $126,000 | $126,001 – $146,000 | ≥ $146,000 |
| Married Filing Jointly (spouse covered) | ≤ $236,000 | $236,001 – $246,000 | ≥ $246,000 |
| Married Filing Separately (any coverage) | < $10,000 | $0 – $10,000 | ≥ $10,000 |
Example:
If you’re single, covered by a 401(k), and your MAGI is $85,000, you can deduct part of your Traditional IRA contribution for 2025.
Public is an investor-friendly platform that simplifies the process of opening and managing IRA accounts. Whether you’re looking to build long-term retirement savings or roll over an existing IRA, Public.com offers a transparent and easy-to-use experience. Here’s how to get started:
To open a Traditional IRA or a Roth IRA, download the Public app on iOS or Android. The platform provides a seamless onboarding process, guiding you through account setup and helping you understand your investment options.
Once your IRA is set up, you can start contributing by:
To stay on track with your retirement savings goals, you can choose:
Public offers a user-friendly platform to help you build and manage a diversified retirement portfolio. You can invest in:
Public provides an intuitive dashboard where you can:
Manage your Traditional IRA and Roth IRA on Public while maximizing tax advantages and building a strong retirement foundation—all in one place. Invest in stocks, ETFs, crypto, bonds, options, a high-yield cash account, and U.S. Treasury bills with the flexibility to diversify your portfolio. Get started today!
Understanding both the potential benefits and the limitations may help you decide how a Traditional IRA may or may not fit into your broader financial picture.
A Traditional IRA can offer a simple way for you to build retirement savings with tax-deferred growth and potential deductions. Whether you’re just starting your career, freelancing full-time, or looking to supplement your 401(k), this type of account may fit into your long-term plans depending on your financial situation.
If you’re considering opening a Traditional IRA, sign up on Public.com to get started. Public offers unique features like a 1% match on annual contributions and access to thousands of investment options, including stocks, ETFs, bonds, and even options trading.
No, Investments in a Traditional IRA don’t grow entirely tax-free, but they do grow tax-deferred. This means you won’t pay taxes on your earnings—like interest, dividends, or capital gains—until you withdraw the money in retirement.
No, a traditional IRA is different from a 401(k). IRAs are individual retirement accounts that are not connected to your employer, and you can have one in addition to a 401(k).
Yes, you can roll over a traditional IRA into a 401(k) if you’re looking to consolidate your retirement accounts. You can also roll over 401(k) accounts into a traditional IRA for more flexibility. Additionally, you can perform a Roth conversion to convert a traditional IRA into a Roth IRA.
Any early withdrawals from a traditional IRA will be subject to a 10% penalty. The only exception to this is if you roll over your traditional IRA into a 401(k) or convert it to a Roth IRA.
