Probably one of the most well-known retirement savings account options, a traditional IRA is an individual retirement account that provides a variety of benefits, says Ebony Howard, CPA with RetireGuide. “You make pre-tax contributions, and the investment earnings on those contributions in the account grow tax deferred,” explains Howard. “The contributions and investment earnings are not taxed until you make withdrawals in retirement.” What’s more, contributions to a traditional IRA may be fully or partially deductible on your annual tax filing, explains Howard.
In addition, funds can be withdrawn at any time, but there may be a 10% penalty for drawing money before age 59½. There are, however, various life events that allow for penalty-free use of the money including a first home purchase, birth of a child, adoption, and certain college expenses, says Howard. “Traditional IRAs may be a good choice for those who want tax benefits such as tax-deductible contributions and would like their earnings to grow tax deferred,” says Howard.