Traditional IRA.

In plain English

A Traditional IRA is a personal retirement account you open yourself. Contributions may be tax-deductible the year you make them (subject to income limits and whether you're covered by a workplace retirement plan). The money grows tax-deferred, no tax on dividends or gains while it's in the account. When you withdraw in retirement, every dollar (contribution and growth) is taxed as ordinary income. The 2026 contribution limit is $7,500 ($8,600 if you're 50 or older), the same as the Roth IRA limit.

01Why it matters

IRA stands for Individual Retirement Account. The two main flavors are Roth and Traditional. The Traditional IRA is the right choice for some people and the wrong one for others. It generally beats a Roth when you're in a higher tax bracket now than you expect to be in retirement, for instance, late-career, high-earning years where the deduction is genuinely valuable. For most people in their 20s and early 30s, the Roth IRA is more powerful because they're in a lower bracket now than they likely will be later.

02The math, step by step

A single filer in the 24% bracket contributes $7,500 to a Traditional IRA and qualifies for the full deduction. They save about $1,800 in federal taxes that year. Decades later, in retirement, they withdraw the money (now grown to, say, $54,000) and pay tax on every dollar at their then-current rate. If they're in the 12% bracket in retirement, the lifetime tax savings was real. If they end up in the 24% bracket again, it was roughly a wash.

03What this is NOT

04Receipts

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