Traditional IRA
What is a traditional IRA, and how does it work?
Traditional IRAs allow investors to make tax-deductible contributions into an individual retirement account (IRA), and any earnings are tax deferred.
What Are the Benefits of Traditional IRAs?
Tax-Deductible Contributions
All or some of your contributions may be deductible on your income tax return. Learn more about IRA tax deduction rules.
Tax-Deferred Earnings
Any earnings grow tax deferred and are taxed at your ordinary income tax rate at the time of withdrawal.
Withdrawals Potentially Taxed at a Lower Rate
Retirees are often in a lower tax bracket when making withdrawals.
Who Is Eligible?
You or your spouse (if one of you are not working and you file a joint return) must have earned income during the year. There is no age limit on making regular contributions to a traditional IRA, as long as you have earned income.
Use our Roth IRA vs. Traditional IRA calculator to compare account types.
How Much Can I Contribute?
Annual contribution limits are listed below. If you are age 50 or older, you can contribute an additional amount—called a catch-up contribution—to your IRA each year. If you are married and your spouse is not working, you may also make a spousal contribution into an IRA under your spouse's Social Security number.1
Annual Contribution Limits | Annual Catch-Up Contribution Limits | |
|---|---|---|
Single – 2026 | $7,500 | $1,100 |
Married Filing Jointly – 2026 | $15,000 | $2,200 |
There is no modified adjusted gross income (MAGI) limit for traditional IRA contributions.
What Are My Investment Options?
You can hold investments such as mutual funds and exchange-traded funds (ETFs) in a traditional IRA through our brokerage service.
Mutual Funds
Select from a variety of no-load mutual funds based on your risk tolerance and investment objectives.
ETFs
Our ETF lineup offers a comprehensive range of active strategies, available through our brokerage service.
Diversified Portfolios
Multi-asset funds combine stocks, bonds and short-term investments.
Brokerage
Choose from more than 10,000 mutual funds from other fund families, as well as ETFs, publicly traded stocks, bonds and more.
Additional Details
Deductibility depends on modified adjusted gross income (MAGI)2 and whether you or your spouse is covered by an employer-sponsored retirement plan. You must figure your deduction and your spouse's deduction separately.
The deduction for contributions to traditional IRAs phases out over the following MAGI levels:
Covered by Employer Plan
Single – 2023: $73,000-$83,000
Married Filing Jointly – 2023: $116,000-$136,000
Not Covered by Employer Plan
Single or Married Filing Jointly with a spouse who is also not covered
2023: No limit
Married Filing Jointly With a Spouse Who Is Covered
2023: $218,000-$228,000
There is no income limit for contributions to a nondeductible traditional IRA.
You may begin taking penalty-free withdrawals from a traditional IRA at age 59½. However, taxes will apply to these withdrawals.
Withdrawals for special purposes may be permitted prior to retirement.
The IRS requires you to take money from a traditional IRA when you reach a certain age. These withdrawals are called required minimum distributions (RMDs), and it’s important to know the rules and any new changes.
The SECURE Act 2.0, effective January 1, 2023, changed the age at which RMDs begin. Learn more by reviewing our RMD Guide.
You may convert all or part of a traditional IRA to a Roth IRA regardless of income limits.
While conversions are penalty-free, the amount you convert that has not previously been taxed, including earnings, must be included as taxable income and could potentially move you into a higher tax bracket. Taxes will be due when you file your income tax return for the year in which you converted.
Once you convert from a traditional IRA to a Roth IRA, your new IRA investment and any accumulated earnings will grow free of federal income taxes, provided you meet the conditions described in the Roth Withdrawals section.
Please consult your tax advisor for more detailed information regarding the Roth IRA or for advice regarding your individual situation.
Taxes are deferred until withdrawal if the requirements are met. A 10% penalty may be imposed for withdrawal prior to reaching age 59½.
Funds held directly with American Century Investments: If your total investments are below a certain threshold, your account will be subject to an account maintenance fee. Refer to the Service Options flyer for details about this fee, including how you can have the fee waived.
American Century Brokerage: A $50 annual custodial fee is charged per account. This fee is waived for Platinum, Gold and Silver Priority Investors or if the balance of the account is over $10,000. See Fees and Commissions for more information.
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Exception for married filing jointly: An employed spouse may contribute to a separate IRA on behalf of a spouse who has little or no income. The amount of the couple’s combined contributions can’t be more than the taxable compensation reported on their joint return. For more information, refer to Spousal IRA sections in IRA Publication 590-A.
Modified adjusted gross income (MAGI) is your adjusted gross income (AGI) with standard deductions included.
IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.
This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.
IRA investment earnings are not taxed. Depending on the type of IRA and certain other factors, these earnings, as well as the original contributions, may be taxed at your ordinary income tax rate upon withdrawal. A 10% penalty may be imposed for early withdrawal before age 59½.
Diversification does not assure a profit nor does it protect against loss of principal.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
Brokerage Services are provided by American Century Brokerage, a division of American Century Investment Services, Inc., registered broker/dealer, member FINRA, SIPC .