Traditional IRA FAQs

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What is a Traditional IRA?

A Traditional IRA is an individual tax-advantaged plan for those looking to save money for retirement. Traditional IRAs can be more conducive to a self-directed investment approach than employer-sponsored 401(k)s or pension plans. In this regard, “traditional” does not refer to common investments such as stocks, mutual funds, or other publicly traded equities; “traditional” is simply a moniker to distinguish the Traditional IRA from other retirement accounts with different tax benefits.

What are the near-term advantages?

Traditional IRA contributions may be deducted from your income for tax purposes. For instance, if you earn $50,000 and make a $5,000 contribution to your Traditional IRA, under most circumstances you will only have to pay income taxes on $45,000 for that tax year.

What are the long-term advantages?

Having enjoyed the benefit of tax-deductible contributions, Traditional IRA holders must pay regular income taxes on their distributions (withdrawals). However, these distributions would ideally occur at retirement age when the holder is earning less per year and is therefore in a lower tax bracket. So, for example, you could pay 24% in taxes on your full income in a given year, or you could make a contribution to save yourself some money. Perhaps you’ll only pay 12% on those same funds when you distribute them down the road.

How much can I contribute per year?

Traditional IRA holders below the age of 50 may contribute up to $6,000 per year for the 2019 tax year. Those age 50 or above may contribute an additional $1,000. The Traditional IRA contribution deadline for a particular year falls on the tax filing deadline of said year. As such, account holders have been able to make 2019 contributions since January 1, 2019 and may do so until April 15, 2020.

What can I invest in with my Traditional IRA?

At New Direction Trust Company, your self-directed IRA can invest in anything allowed by the IRS. Available alternative IRA investments include real estate, precious metals, promissory notes, or almost anything else you can think of. While many IRA custodians limit their clients to publicly traded instruments, self-directed retirement affords the opportunity to implement investment models that you understand, all while enjoying the tax advantages of Traditional IRAs and other such savings vehicles.

For more information about self-directed investing, please contact us at 877-742-1270 or