What are the benefits of traditional IRAs?

Preparing for a financially secure retirement often requires a multilayered strategy that balances savings, tax planning and long‑term wealth transfer goals. One tool that can help is a traditional IRA, a flexible savings option that provides important tax advantages over a regular brokerage account.

Whether you have a retirement plan through your employer or not, these accounts can be an effective way to grow your nest egg. We'll explore the benefits of traditional IRAs and when they might make sense as part of your long-term financial plan.

A traditional IRA is a retirement account that helps you save for future needs while reducing your current tax bill. These independent accounts also offer flexibility that many employer plans don’t, giving you more control over how you build long‑term assets and manage your overall retirement tax strategy.

Here's how a traditional IRA works:

You choose a mix of investments offered by your financial institution, which may include individual stocks and bonds, as well as mutual funds and exchange-traded funds (ETFs). The money you put into your account may be tax-deductible, up to the annual IRS limits, and grows on a tax-deferred basis. That means you don't have to pay tax on capital gains, interest or dividends as they accrue in your IRA. When you eventually pull money out—which you can do penalty-free after age 59½—you pay ordinary income tax on your entire withdrawal.

These tax-advantaged accounts can be particularly beneficial if you don't have a retirement vehicle through your workplace. But even if you do have access to a 401(k) or other employer-sponsored plan, you still can contribute to an IRA and put more toward your retirement savings each year.

To qualify for a traditional IRA, you or your spouse must have earned income from wages, salaries or tips from working. Income from real estate rentals, interest, dividends and other types of passive income doesn't count. There's no income limit for opening or contributing to a traditional IRA, although your income helps determine how much of your total annual contribution is tax-deductible.

Traditional IRAs offer several advantages, including meaningful tax savings, that can strengthen your retirement strategy and complement other long‑term planning tools. Below are some of the more notable benefits these accounts have to offer.

Traditional IRAs are tax-deferred, meaning you can hold off on paying taxes until you withdraw your funds. Because you're not paying taxes on investment earnings each year, your money has the ability to compound more quickly. Having money in different tax "buckets"—taxable, tax-deferred and non-taxable—can boost your tax efficiency while meeting your short-term and long-term financial needs.

Among the tax benefits of traditional IRAs is the ability to write off contributions. By doing this, you can invest more than you would with a fully taxable investment account. If neither you nor your spouse has access to an employer-sponsored plan, your traditional IRA contributions are fully tax-deductible. Otherwise, your traditional IRA contributions are tax-deductible if your income falls below certain thresholds.

With a 401(k) or other retirement plan offered through your employer, you may be limited in the available investment choices. However, opening a traditional IRA usually allows you to choose from a wider variety of assets, which can help you diversify your portfolio, minimizing market risk while working to meet your financial goals.

Even if you have a retirement plan through your employer, opening an IRA can still be a smart move that increases your savings capacity and expands your long‑term tax planning options. In addition to the greater flexibility and choice you get with an IRA, having both gives you the ability to maximize your annual retirement savings and take advantage of tax diversification within your portfolio.

While the express purpose of a traditional IRA is retirement readiness, a major life event may require you to access your funds early. You can make penalty-free withdrawals before the age of 59½ for qualifying expenses, such as a birth, an adoption, educational expenses or a first-time home purchase.

For 2026, the annual contribution limit for IRAs increases to $7,500 for individuals under age 50. If you are age 50 or older, you can make an additional $1,100 catch‑up contribution, bringing your total possible contribution to $8,600 for the year.
If you own more than one IRA, the yearly contribution limit applies across all your IRAs combined. For example, if you are under age 50 in 2026, you could contribute $5,000 to a traditional IRA and $2,500 to a Roth IRA, as long as your total contribution does not exceed the $7,500 annual limit.

Instead of making direct contributions, you can also roll over money from another retirement account into a traditional IRA. IRA rollovers do not count toward the annual contribution limit.

Because IRAs are intended for long-term needs, you typically can make penalty-free withdrawals only at age 59½ or older. Typically, any traditional IRA distributions you make count as income and are taxed at your ordinary rate.
According to traditional IRA withdrawal rules, distributions made before age 59½ incur income taxes and a 10% penalty. However, you can avoid the penalty (but not income tax) if the withdrawal is eligible for certain early withdrawal exceptions. These include:

• Paying for health insurance premiums after a job loss
• Purchasing a first home (up to $10,000)
• Giving birth to, or adopting, a child (up to $5,000)
• Paying qualified education costs for you or a family member

Required minimum distributions, or RMDs, are the minimum amount of money you must withdraw from a traditional IRA or 401(k) after you reach a certain age. You can use this distribution in many ways—including living expenses, charitable donations and reinvesting in another way—but you do have to pay income taxes on these withdrawals.
The Secure Act 2.0 changed RMDs using a sliding scale determined by your birthdate:

• If you were born between 1951 and 1959, your RMDs start at age 73.
• If you were born in 1960 or after, your RMDs start at age 75.

Your financial advisor can help you plan a traditional IRA distribution strategy as you get closer to retirement or RMD age.

While traditional IRAs provide an upfront tax benefit in the form of a tax deduction, Roth IRAs provide a delayed tax advantage. The Roth version doesn't allow you to deduct your contributions, so you invest with post-tax dollars. However, you can make withdrawals, completely tax-free, if you are age 59½ or older and have owned the account for at least five tax years.

Deciding on a Roth vs. traditional IRA largely comes down to which tax bracket you expect to be in when you make withdrawals. Generally, traditional IRAs provide greater tax relief if you're paying a relatively high tax rate now but expect to be in a lower tax bracket in your 60s and 70s.

In addition, you may not be able to contribute to a Roth IRA unless you meet income requirements. With traditional IRAs, you can contribute up to the allowable annual limits regardless of how much you make. However, your income can affect whether your contribution is tax‑deductible.

However, one potential advantage of Roth IRAs is that they don't have RMD requirements, giving you more flexibility in making withdrawals. That can be especially valuable for estate planning because it allows you to keep assets growing for your heirs and support a more tax‑efficient transfer of wealth.

• You and/or your spouse have earned income.
• You anticipate that, when you retire, you may be in either the same or a lower tax bracket than you are now.
• You may benefit from traditional IRA income tax deductions on your contributions.
• You feel confident you won't need to access your funds until age 59½ or, if you need it earlier, will qualify for exemptions to the early withdrawal penalty.

• You and/or your spouse have earned income.
• You meet the income limits for participation.
• You believe you'll be in a higher income tax bracket in retirement than you are now.
• You don't want to worry about RMDs and prefer to let your money grow tax-free after your RMD age.
• You want the option to withdraw funds penalty-free before 59½, if your Roth IRA meets the five-year rule and you qualify for an exemption.

Yes, you can have more than one IRA and add funds to each. However, the total contributions can't exceed the IRS yearly limit. For example, if you're 40 and have both a traditional and Roth IRA in 2026, you can contribute to those IRAs in any combination, such as $3,750 in each or $1,500 in one and $6,000 in the other.

Alternatively, you may decide to contribute toward both kinds of IRAs to achieve greater income tax diversification. By putting money into both your tax-deferred and non-taxable buckets, you're allowing yourself more flexibility when it's time to make withdrawals. This strategy allows you to pull just enough from your traditional IRA to stay in a low tax bracket while taking tax-free withdrawals from your Roth IRA for any additional income needs.

Traditional IRAs are offered by many financial institutions, including banks, credit unions, brokerage firms and mutual fund companies. The best IRA providers offer a combination of competitive fees, extensive investment options and reliable customer service.

Once you fill out an application with some basic personal information, you'll have to pick a mix of investments that best suits your time horizon and risk tolerance. You need to make an initial contribution to start the account, but you can link your bank account if you wish to make automatic contributions going forward.

Retirement is your reward after decades of hard work. But to get the most out of this important stage of life, you need a financial plan that can help you generate a sustainable source of income in your later years. To learn more about IRAs and find out whether they make sense in your retirement strategy, connect with a local Thrivent financial advisor.