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Traditional IRA

What is a Traditional IRA, and how does it work?

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Traditional IRAs allow investors to make tax-deductible contributions into a retirement account, 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.

Tax-Deferred Earnings

Any earnings grow tax deferred and are taxed at your ordinary income tax rate at the time of withdrawal.

Retired man playing tennis.

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.{sup}1{/sup}

Annual Contribution Limits

Annual Catch-Up Contribution Limits (age 50 or older)

Single – 2023

$6,500

$1,000

Married Filing Jointly – 2023

$13,000

$2,000

There is no Modified Adjusted Gross Income (MAGI) limit for traditional IRA contributions.

What Are My Investment Options?

You can open a Traditional IRA in a mutual fund or in an exchange-traded fund (ETF) or other investment vehicle through our brokerage service.

Mutual Funds

Select from a variety of no-load mutual funds based on your risk tolerance and investment objectives.

ETFs

You can open a Traditional IRA in a mutual fund or in an ETF or other investment vehicle through our brokerage service.

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){sup}2{/sup} 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).

  • The SECURE Act, effective January 1, 2020, changed the age at which RMDs begin. Learn more by reviewing our RMD Guide.

    • If you were born before July 1, 1949, you must begin RMDs at age 70½.

    • If you were born on or after July 1, 1949, you must begin RMDs at age 72.

  • 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 Withdrawals section below.

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.

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.

  • Funds held directly with American Century Investments: A $25 annual account maintenance fee is charged to investors whose total investments with us are less than $10,000 for each taxpayer identification number (for example, Social Security number).

  • 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.

Retired couple roller skating.

Ready to Invest?

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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.

This information is for educational purposes only and is not intended as a personalized recommendation or fiduciary advice. There are different options available for your retirement plan investments. You should consider all options before making a decision. Our representatives can help you evaluate all of your distribution options.

Brokerage Services are provided by American Century Brokerage, a division of American Century Investment Services, Inc., registered broker/dealer, member FINRASIPC.