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A traditional IRA lets you postpone taxes

Want to put off your tax bill while you put away money for your retirement? Think traditional IRA.

What is a traditional IRA?

A traditional IRA is a type of individual retirement account that lets your earnings grow tax-deferred. You pay taxes on your investment gains only when you make withdrawals in retirement.

Other traditional IRA advantages

Tax-deductible contributions

If you're not covered by a retirement plan at work, you can deduct the entire amount of your IRA contribution on your income tax return. For the 2019 and 2020 tax years, this would be up to $6,000 annually, or $7,000 if you're 50 or older.

No income limit

There's no maximum income limit. You can invest in a traditional IRA no matter how much money you earn.

Some things to think about

Age limit on contributions

As a result of changes made by the SECURE Act, you can make contributions to a traditional IRA for 2020 or later regardless of your age. You cannot contribution to a traditional IRA for 2019 if you reached age 70½ or older in 2019.

Mandatory RMDs

The CARES Act provides a temporary waiver of RMDs for 2020 including any delayed 2019 RMD (if the 2019 RMD wasn't taken before January 1, 2020). If you would have had an RMD obligation for 2020, you do not have to take your RMD for 2020 (or delayed 2019 RMD) if you don't want to.

If you have already taken a withdrawal in 2020 that would have been an RMD (had RMDs not been waived), you may be eligible to roll the money over. All or a portion of a distribution already taken in 2020 (that would have represented an RMD, had RMDs not been waived) may be rolled over back into an IRA by August 31, 2020. Rollovers of RMDs taken in 2020 don't count toward the IRA one-rollover-per-365-days rule.

New guidance permits RMDs taken in 2020 from inherited IRAs to be rolled back into the inherited IRA the distribution came from, by August 31, 2020.

For more information about the rollover rules, go to irs.gov or consult a tax advisor.

You must begin taking required minimum distributions (RMDs) from your account by April 1 of the calendar year following the year you reach age 72 (age 70½ if you attained age 70½ before 2020).

Taxable withdrawals

Withdrawals may be subject to federal income tax.

The sooner, the better

The younger you are when you open your IRA, the greater your saving potential because you get that tax-free compounding clock ticking longer and harder for you.

Open your IRA today

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REFERENCE CONTENT

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Compounding

The snowball effect that happens when your earnings generate even more earnings, not only on your original investments, but also on any interest, dividends, and capital gains that accumulate. That means that your "money makes money" and can grow faster over time.