Glossary
Traditional IRA
A traditional IRA is an individual retirement account funded with money that is often tax-deductible going in, grows tax-deferred, and is taxed as ordinary income when withdrawn in retirement.
Deductibility phases out at moderate incomes for people covered by a workplace plan (nondeductible contributions remain allowed, tracked on Form 8606). Withdrawals before 59½ generally face a 10% penalty plus tax, with listed exceptions, and required minimum distributions begin at the statutory age. Traditional IRAs are also the default landing place for most 401(k) rollovers.
Why it matters in practice
The traditional-versus-Roth question is a tax-rate bet — deduct now and pay later, or pay now and never again — and the traditional side tends to win for people in higher brackets today than they expect in retirement. Because rollovers concentrate careers of savings here, traditional IRA balances also drive two later planning issues: the pro-rata rule that complicates backdoor Roths, and the RMD income wave that Roth conversions exist to smooth.
Related terms: Roth IRA · IRA (Individual Retirement Account) · Rollover · Required Minimum Distribution · Tax-Deferred