One of the most powerful financial moves available to individual savers — especially those without a workplace retirement plan — is opening and consistently contributing to a Traditional IRA. Yet one of the most common things I hear from people who haven’t started is: “I still have plenty of time.” In my experience, that thinking costs people more than almost any other financial mistake.
The truth is simple: the earlier you start contributing to a Traditional IRA, the more your money can grow through the power of tax-deferred compounding. Here’s everything you need to know.
What Is a Traditional IRA?
A Traditional IRA (Individual Retirement Account) is a personal retirement savings account that allows your money to grow tax-deferred until you withdraw it in retirement. Unlike a 401(k), which is offered through an employer, a Traditional IRA is something you open and manage yourself — through a bank, brokerage, or investment firm.
Your IRA funds can be invested in a wide range of assets: stocks, bonds, mutual funds, ETFs, and certificates of deposit. The investment choices are yours, and I work with clients to select an allocation appropriate for their time horizon and risk tolerance.
The Primary Tax Benefit
Contributions to a Traditional IRA may be fully or partially tax-deductible, depending on your income and whether you (or your spouse) have access to a workplace retirement plan. The deduction reduces your taxable income in the year you contribute — which means a lower tax bill today. Your contributions and all earnings then grow tax-deferred until withdrawal.
For example, if you’re in the 22% tax bracket and contribute $7,000 to a Traditional IRA, you could reduce your federal tax bill by approximately $1,540 in that year alone.
2026 Contribution Limits
You can contribute up to $7,500 per year to a Traditional IRA or $8,600 if you’re age 50 or older. You must have earned income equal to or greater than your contribution amount. Contributions can be made up until the tax filing deadline (typically April 15 of the following year).
Important Rules I Walk Clients Through
- Early withdrawal penalty: Withdrawals before age 59½ are generally subject to a 10% penalty plus ordinary income taxes. Exceptions exist for qualified education expenses, a first home purchase (up to $10,000), certain medical expenses, disability, and a few other situations.
- Required Minimum Distributions (RMDs): Starting at age 73, you must begin taking annual withdrawals from your Traditional IRA. The amount is calculated based on your account balance and IRS life expectancy tables. These withdrawals are taxed as ordinary income.
- IRA rollovers: If you change jobs or retire, you can roll over a 401(k) or other employer plan into a Traditional IRA to maintain tax-deferred growth and consolidate your accounts. You generally have 60 days to complete an indirect rollover.
Traditional IRA vs. Roth IRA: Which Is Right for You?
The Traditional IRA makes the most sense when you expect to be in a lower tax bracket in retirement than you are today — because you’re deferring taxes to a time when the rate will be lower. If you expect taxes to be higher in retirement, a Roth IRA — where you pay taxes now and withdraw tax-free later — may serve you better. I help clients compare both options based on their specific income, tax situation, and retirement timeline.
Don’t Wait to Get Started
Whether you’re 25 or 55, the best time to start contributing to a Traditional IRA is now. Even modest contributions made consistently over time can grow to a substantial sum by retirement. Use the calculator below to see what your IRA could be worth based on your contributions, time horizon, and expected rate of return.