What is a Traditional IRA?

A Traditional IRA is a type of individual retirement account in which individuals can make pre-tax contributions and the investments in the account grow tax deferred. Depending on your income, your contribution may be tax deductible. You pay no taxes on any investment earnings until you withdraw or “distribute” the money from your account, presumably in retirement.

With a Traditional IRA, you’ll pay ordinary income tax on your withdrawals, and you must start taking distributions at age 73.

Unlike with a Roth IRA, there are no income limitations to open a Traditional IRA. It may be a good option for those who expect to be in the same or lower tax bracket in the future.

Due to the Setting Every Community Up for Retirement Enhancement Act (SECURE Act), beginning in tax year 2020, there is no maximum age restriction for making a Traditional IRA contribution as long as you, or your spouse if filing jointly, have earned income.

Grow your retirement savings

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Save money for retirement

Withdrawals are penalty-free once IRA owner reaches 59 1/2

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Cut your tax bill

Possible tax deduction, based on income and retirement plan participation

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Customized IRA plan

Talk to a CFS Financial Advisor available through CUSO Financial Services, L.P. (“CFS”) about your investment options2

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Supports Deposit Products

Choosing deposit products offers a guaranteed return on principal, federally insured up to $250,000

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Certificate account options

IRA Certificates offer competitive rates and terms from 3-60 months.

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Money Market Select account option

Competitive tiered rates and no opening balance minimum

Frequently Asked Questions

    One of the immediate benefits of contributing to a Traditional IRA is a tax deduction you can receive on your income taxes. For tax year ending December 31, 2022, you may receive a 100% deduction on your annual contribution if:

    • You don’t receive benefits under an employer’s retirement plan.
    • Or (if you do receive benefits under an employer’s retirement plan), your modified adjusted gross income is no more than $109,000-$129,000 if married and filing jointly or $68,000-$78,000 for single filers (these amounts are for the tax year ending December 31, 2022).

    For the tax year ending December 31, 2023, you may receive a 100% deduction on your annual contribution if:

    • You don’t receive benefits under an employer’s retirement plan
    • Or (if you do receive benefits under an employer’s retirement plan), your modified adjusted gross income is no more than $116,000-$136,000 if married and filing jointly or $73,000-$83,000 for single filers (these amounts are for the tax year ending December 31, 2023).

    And if you participate in an employer plan, IRA deductibility is gradually phased out above these income levels

    If you reach the age of 50 before the end of the taxable year, you may be eligible to contribute an additional catch-up contribution to your Traditional and/or Roth IRA.

    • You can open and fund one without employer participation.
    • Contributions/earnings are tax-deferred until retirement.1
    • Depending on your plan participation and income, you may benefit from tax deductions.
    • Your funds are always available, generally not true of employer plans.
    • There’s no minimum contribution.

    The main difference between them is when you pay taxes.

    A Traditional IRA is tax deferred. This means that you can contribute money before it’s taxed, and you don’t owe taxes on those contributions or your earnings until you withdraw the money. It’s likely that you will be earning less when you begin to withdraw from your IRA, which means that you may end up being in a lower tax bracket and paying less overall in taxes.

    A Roth IRA is not tax deferred, which means you owe taxes when you contribute the money to the account. But that means you won’t have to worry about paying them later and your contribution can grow tax-free. Withdrawals of contributions and earnings are tax free if your account has been open at least five years, and you’re at least 59 and a half.

    If you want to make a withdrawal before you’re 59 and a half, you’ll have to pay a 10% tax penalty. On the other hand, you must begin to take required minimum distributions (RMDs) once you turn 73 if you have a Traditional IRA. This is the minimum amount that you’re required to withdraw each year. RMDs are taxed as ordinary income. If you have a Roth IRA, you won’t have an RMD.

Recommended Resources

We’ve made it easier for you to learn more about retirement savings.

1 Consult tax advisor about IRA tax advantages.

2 Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Patelco Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

Financial Advisors are registered to conduct securities business and licensed to conduct insurance business in limited states. Response to, or contact with, residents of other states will be made only upon compliance with applicable licensing and registration requirements. The information in this website is for U.S. residents only and does not constitute an offer to sell, or a solicitation of an offer to purchase brokerage services to persons outside of the United States.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, Certified Financial Planner™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.


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