Traditional IRA
Also: Traditional IRA, IRA, traditional individual retirement account
An individual retirement account funded with deductible or nondeductible contributions. 2025 limit is $7,000 ($8,000 age 50+). Deductibility phases out for active participants in an employer plan at higher income.
A traditional IRA is an individual retirement account under IRC Section 408. Contributions may be deductible if the filer (and spouse) are not active participants in an employer retirement plan, or if income is below phase-out thresholds. For 2025, a single filer who is an active participant loses the deduction above $89,000 MAGI. Contributions grow tax-deferred and are taxed as ordinary income at distribution. Nondeductible contributions track basis on Form 8606 and distribute tax-free to the extent of basis.
Example: a tech employee covered by a 401(k) with $350,000 MAGI cannot deduct traditional IRA contributions. She contributes $7,000 nondeductible. Form 8606 establishes $7,000 of basis. If she later converts the IRA to Roth with no other IRA balances, the conversion is tax-free on the basis. Earnings are taxed.
Common mistake: forgetting to file Form 8606 when making nondeductible contributions. Without it, the IRS cannot trace basis, and the entire IRA is taxed again at distribution.
Traditional IRAs matter at backdoor Roth setup, at 401(k) rollover decisions, and at distribution planning in retirement.