A Traditional Individual Retirement Account (IRA) has seemingly lost favor in recent years, but still remains a powerful retirement vehicle. Contributions to a Traditional IRA may be fully or partially tax-deductible depending on your income, tax filing status, and whether you or your spouse are covered by a workplace retirement plan. This tax deduction can reduce your taxable income for the year in which the contribution is made, offering immediate tax savings. The account then grows tax-deferred, meaning you don’t pay taxes on investment gains, dividends, or interest until funds are withdrawn.
One common question we hear is: “What’s the difference between a Traditional IRA and a Contributory IRA?” The distinction is mostly in terminology. A Traditional IRA refers to the overall account type, which can be funded through annual contributions, rollovers, or transfers. A Contributory IRA, on the other hand, is simply a Traditional IRA funded specifically through personal contributions. While the IRS doesn’t differentiate between the two, advisors and custodians often use the term “Contributory” to track the source of funds for administrative or reporting purposes. At RSS, for example, we generally roll over previous employer 401(k) plans into a Contributory IRA and make post-tax contributions to a Traditional IRA.
Contributions & Deductibility
In 2025, the contribution limit for Traditional IRAs is $7,000 for individuals under age 50, with an additional $1,000 “catch-up” contribution allowed for those 50 and older, for a total of $8,000. While there is no income limit to make a non-deductible contribution to a Traditional IRA, income limits do apply for deducting contributions if the contributor or their spouse is covered by a retirement plan at work. For a single individual covered by a workplace plan, the deduction begins to phase out at a Modified Adjusted Gross Income (MAGI) of $77,000 and is fully phased out at $87,000. For married couples filing jointly, where the contributor is covered by a workplace plan, the phase-out range is $123,000 to $143,000. If the contributor is not covered but their spouse is, the phase-out range is $230,000 to $240,000.
Taxation
Withdrawals from Traditional IRAs are taxed as ordinary income and are generally subject to a 10% early withdrawal penalty if taken before age 59½, although exceptions exist (such as for first-time home purchases, certain medical expenses, or qualified higher education costs). Another drawback with Traditional IRAs is that they are subject to Required Minimum Distributions (RMDs), which must begin by April 1 of the year following the year you turn 73. This distinguishes them from Roth IRAs, which have no RMDs during the original owner’s lifetime. Another restriction unique to Traditional IRAs is the “pro-rata rule,” which affects how distributions are taxed when an account contains both deductible and non-deductible contributions—an important consideration for anyone using backdoor Roth strategies, a strategy we discuss under the All Things Roth IRA post.
