How does a Traditional IRA work?
Last updated August 2026
Short answer
The Traditional IRA is the older half of a pair, and choosing between it and a Roth is really a bet about your own tax rate decades from now.
The basic bargain
Money goes in before tax, if you qualify for the deduction, so a $7,500 contribution reduces this year's taxable income by $7,500.
Inside the account, dividends, interest and realised gains are untaxed each year, which removes the drag that a taxable account carries.
Withdrawals are taxed as ordinary income at whatever rate applies then, including the growth. The government is a silent partner whose share is settled at the end.
Whether you get the deduction
If neither you nor your spouse is covered by a workplace retirement plan, the deduction is available regardless of income.
If you are covered, the 2026 phase-out runs from $81,000 to $91,000 for single filers, and $129,000 to $149,000 for married couples filing jointly where the contributor is covered.
If you are not covered but your spouse is, the range is $242,000 to $252,000. Filing separately while covered gives a range of $0 to $10,000, which is not adjusted for inflation.
Non-deductible contributions
Earning above the phase-out does not stop you contributing. It stops you deducting, and the contribution becomes basis in the account.
That basis is tracked on Form 8606, and keeping those forms matters, because they are what prevents the same money being taxed twice on the way out.
Non-deductible balances also trigger the pro-rata rule on any Roth conversion, which is where backdoor Roth attempts go wrong.
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Getting money out
After 59.5, withdrawals are ordinary income and nothing more.
Before 59.5, an additional 10% tax generally applies on top of income tax, with exceptions including certain medical expenses, higher education costs, a first home up to a limit, disability and substantially equal periodic payments.
There is no five-year rule on contributions as there is with a Roth, because nothing here was taxed on the way in.
Required minimum distributions
From age 73, you must withdraw a minimum amount each year, calculated from your balance and an IRS life expectancy table.
The first distribution can be deferred to 1 April of the following year, which stacks two into one tax year and is usually a worse outcome than taking it on time.
Missing one carries a penalty, reduced by SECURE 2.0 and reduced further if corrected promptly. A Roth IRA has no lifetime requirement, which is a genuine planning difference.
When it beats a Roth
When your current marginal rate is high and you expect a lower one in retirement, the deduction now is worth more than tax-free growth later.
When you are close to retirement, since there are fewer years for tax-free compounding to outweigh an immediate deduction.
When the deduction is what makes the contribution affordable at all, which is a practical argument that outranks the theoretical one.
Sources
Contribution limits and deduction phase-outs for 2026 are from IRS Notice 2025-67. Rules on contributions, deductions and distributions are in Publication 590-A and Publication 590-B. Walnut is informational and is not an investment adviser. This guide is educational and not personalized tax or investment advice.
FAQ
How does a Traditional IRA work?
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You contribute money, potentially deduct it from this year's taxable income, and it grows without annual tax. Withdrawals in retirement are taxed as ordinary income. The bet is that your rate later is lower than your rate now.
How much can I contribute in 2026?
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$7,500, or $8,600 from age 50 with the $1,100 catch-up. The limit is shared across all your IRAs together, traditional and Roth, and it cannot exceed your earned income for the year.
Is my contribution always deductible?
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Only if neither you nor your spouse is covered by a workplace retirement plan, in which case there is no phase-out at all. If you are covered, the 2026 deduction phases out between $81,000 and $91,000 for single filers and $129,000 to $149,000 for married filing jointly.
When can I take money out?
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Any time, but before 59.5 the withdrawal is generally taxed as income plus an additional 10% tax, with a set of exceptions. After 59.5 it is simply ordinary income.
When do required minimum distributions start?
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At age 73 under current law, and the first one may be delayed to 1 April of the following year. Unlike a Roth IRA, a Traditional IRA cannot be left untouched indefinitely, which matters for estate planning.
Can I have both a Traditional and a Roth IRA?
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Yes, and many people do. The $7,500 limit applies to the two combined rather than to each, so splitting means dividing one allowance rather than doubling it.
What is the pro-rata rule?
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If you hold any non-deductible money in a Traditional IRA, a conversion to Roth is treated as coming proportionally from deductible and non-deductible balances across all your IRAs. It is the rule that most often turns a backdoor Roth into an unexpected tax bill.