Up to your full contribution amount may be deducted from your income for a near-term tax benefit.
IRA investment earnings are tax-deferred; your account value can compound faster than non-IRA investing.
Once you reach age 59½, distributions of cash or assets will be taxed as regular income for the year.
If you have earned income and want to save for retirement on a tax-deferred basis, you may contribute to a Traditional IRA until you are 70½ years of age. Age 70½, Traditional IRA holders may no longer contribute to their accounts and must begin taking required minimum distributions every year.
Contributions can be deducted from your income for tax purposes. For example, if you earn $50,000 and contribute $5,000 to your Traditional IRA, you'll only pay taxes on $45,000. Distributions will be taxed as income, ideally once you're retired. For example, instead of paying 24% in taxes this year, contribute a portion of your income and only pay 12% down the road.
Prior to age 59½, distributions from a Traditional IRA will carry a 10% penalty on top of any applicable taxes. At age 59½ and beyond, only the taxes will apply.
As with contributions, all Traditional IRA earnings are tax-deferred. This allows you to re-invest 100% of your IRA profits into new assets if you so choose. Tax-deferred contributions can put you in a lower tax bracket, though you must earn taxable and verifiable income to legally deposit funds into a Traditional IRA.
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