Enter a search term.
line drawing document and pencil

File a claim

Need to file an insurance claim? We’ll make the process as supportive, simple and swift as possible.

Action Teams

If you want to make an impact in your community but aren't sure where to begin, we're here to help.
Illustration of stairs and arrow pointing upward

Contact support

Can’t find what you’re looking for? Need to discuss a complex question? Let us know—we’re happy to help.
Use the search bar above to find information throughout our website. Or choose a topic you want to learn more about.

The benefits of traditional IRAs

Couple using digital tablet
Jose Luis Pelaez Inc/Getty Images

Are you looking for a way to save for retirement beyond the retirement plan offered through your employer? If so, you may want to consider a traditional individual retirement account (IRA). These retirement plans not only can supplement your current savings, but they provide additional benefits like tax advantages. Here's how traditional IRAs can help round out your retirement savings plans.

What is a traditional IRA?

A traditional IRA is a type of qualified retirement savings plan. You make contributions that have the potential to experience compound interest growth over time. Even if you have access to an employer-sponsored retirement plan, such as a 401(k), 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 are no age requirements or income thresholds to open a traditional IRA.

Benefits of traditional IRAs

Traditional IRAs offer several benefits that make them a popular option to help boost retirement savings. They offer:

  • A way to supplement your retirement savings outside of your employer-sponsored programs. According to Thrivent's Retirement Readiness Survey, 42% of those nearing retirement plan to rely on a mix of assets such as a 401(k), personal savings, Social Security benefits and individual retirement accounts (IRAs).1 Traditional IRAs are also a popular option if you don't have access to a retirement savings plan through your employer.

  • Tax-deferred growth potential. Traditional IRAs are tax-deferred, meaning you contribute pretax dollars and defer paying taxes until you withdraw funds. The benefit of tax-deferral is that it gives your money the potential to grow over the long term.

  • Your contributions may be tax-deductible. If you (or your spouse) don't have access to an employer-sponsored plan, traditional IRA contributions are tax-deductible. If either of you does have an employer-sponsored retirement plan, your contributions are tax-deductible if your income falls below certain thresholds.2

  • Qualified withdrawals that are penalty-free. While the express purpose of a traditional IRA is for retirement savings, life happens, and you may need some of the 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. You can view the full list of exceptions here.

  • A choice of a variety of investment options. 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 allows you to choose from stocks, bonds, mutual funds and certificates of deposit (CDs), which can help you diversify your portfolio and meet your risk tolerance.

Traditional IRA contribution limits

The IRS sets annual contribution limits for IRA contributions. These limits apply to both traditional and Roth IRAs.1

  • 2022 contribution limit: $6,000
  • 2023 contribution limit: $6,500.
  • If you're over age 50, you may make a catch-up contribution of an additional $1,000, making the annual limit $7,500 for 2023.

Another way to contribute to your IRA is by rolling over money from another retirement account. Funds rolled over do not count toward the annual contribution limit.

There is also an important date to remember for contribution deadlines:

  • You can contribute to your 2022 IRA until Tax Day 2023, which is April 18, 2023.
  • The deadline to withdraw excess contributions is by Tax Day (plus extensions) if you've exceeded your 2022 IRA contribution limit. Otherwise, you may have to pay a 6% tax on the excess amounts in your account each year.

How withdrawals from a traditional IRA work

Traditional IRA distributions have important rules dictating when you can begin withdrawing your funds:

  • You can withdraw penalty-free as early as age 59½, with your withdrawals taxed at your current income.
  • If you withdraw funds before 59½, you may face a 10% penalty unless you qualify for an exception. Exceptions include to pay health insurance premiums after a job loss, to purchase a first home, to help pay for the birth or adoption of a child, and to help pay qualified education costs for you or a family member. You can view the full list here.

Required minimum distributions from traditional IRAs

Required minimum distributions, or RMDs, are the minimum amount of money you must withdraw from a tax-deferred retirement plan after you reach a certain age. You can use this distribution in many ways—like 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 updated RMD age requirements using a sliding scale determined by your birthdate:

  • If you turned 72 in 2022 or earlier, you start taking RMDs at 72.
  • If you turn 72 after 2022 and 73 before 2033, you start taking RMDs at 73.
  • If you turn 74 after 2032, you start taking RMDs at 75.

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

Are your retirement savings on track?
Get the guideposts for retirement savings by age to see how your savings stack up.

Read now

Why choose a traditional IRA over a Roth IRA?

When determining if a traditional IRA is right for you, you should weigh its counterpart — the Roth IRA. The purpose of a Roth IRA is the same — a tax-advantaged savings vehicle for the purpose of retirement. However, the difference is in the taxation of the accounts.

Unlike a traditional IRA that is funded with pre-tax dollars, a Roth IRA allows you to make contributions with dollars you've already paid taxes on, so you won't have any additional tax liability when you take withdrawals in retirement. Another difference is that Roth IRAs don't have RMD requirements, but they are subject to income limits and early penalty withdrawals.3,4

Depending on your long-term strategy and interest in income tax diversification, one may hold more advantages over the other.

Consider a traditional IRA if:

  • You and/or your spouse have earned income.
  • You believe you are in your peak income-earning years now and believe that when you retire, you may be in either the same or a lower tax bracket than you are now.
  • You may benefit from qualifying for income tax deductions on your contributions.
  • You feel confident you won't need to access these funds until 59½, or if you need the money, it will be for qualifying penalty exemptions.

Consider a Roth IRA if:

  • You meet the income limits for participation.3
  • You (or your spouse) plan to earn your peak income closer to retirement and you believe you may be in a higher income tax bracket in retirement than you are now.
  • You think you will benefit from tax-free withdrawals in retirement.
  • 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 qualifying requirements.

Can you have more than one IRA?

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, you can contribute to those IRAs in any combination, such as $3,250 in each or $1,000 in one and $5,500 in the other.

Opening a traditional IRA

Many financial institutions offer personal IRA accounts, including traditional and online banks as well as brokerage firms. Once you've decided where to open your IRA, you'll be able to fund your account and pick your investments.

You typically can fund your IRA through direct deposit, cash, checks or money orders. Then, you can set up continued deposits through your bank account up to the yearly contribution limit.

If you'd like help learning more about your options and how an IRA may help benefit your retirement dreams, connect with a local Thrivent financial advisor.

1Methodology: This research was conducted in June 2022 among a national sample of 1,500 adults in order to measure their sentiments, financial planning, knowledge, and issues regarding retirement. The interviews were conducted online and the data was broken into three sample groups; Saving, Nearing, and Retired. Results from the full survey have a margin of error of plus or minus 3 percentage points.

2 If you are an active participant in an employer-sponsored retirement plan for 2022, your contribution deduction is reduced if MAGI is between $68,000 and $78,000 on a single return and $109,000 and $129,000 on a joint return. If you're married filing jointly and an active participant in an employer sponsored retirement plan and your spouse is not, the deduction for your spouse's contribution is phased out if MAGI is between $204,000 and $214,000. For 2023, your contribution deduction is reduced if MAGI is between $73,000 and $83,000 on a single return and $116,000 and $136,000 on a joint return. If you're married filing jointly and an active participant in an employer sponsored retirement plan and your spouse is not, the deduction for your spouse's contribution is phased out if MAGI is between $218,000 and $228,000. If you're a married taxpayer who files separately, consult your tax advisor.

3You may contribute to a Roth IRA if your monthly adjusted gross income (MAGI) for 2022 is less than $144,000 (single filer) or less than $214,000 (joint filer) or for 2023 is less than $153,000 (single filer) or less than $228,000 (joint filer).

4Distributions of earnings are tax free as long as your Roth IRA is at least five years old and one of the following requirements is met: (1) you are at least age 59½; (2) you are disabled; (3) you are purchasing your first home ($10,000 lifetime maximum); or (4) the money is being paid to a beneficiary.

Investing involves risk, including the possible loss of principal. The investment’s prospectus will contain more information on its investment objectives, risks, charges and expenses. An investor should carefully read the prospectus and consider all features before purchasing.

CDs offer a fixed rate of return. The value of a CD is guaranteed up to $250,000 per depositor, per insured institution, by the Federal Deposit Insurance Corp. (FDIC), an independent agency of the United States government. Deposit and lending services, including certificates of deposit, are offered by Thrivent Credit Union, the marketing name for Thrivent Federal Credit Union, a member-owned not-for-profit financial cooperative that is federally insured by the National Credit Union Administration and doing business in accordance with the Federal Fair Lending Laws.

While diversification can help reduce market risk, it does not eliminate it. Diversification does not assure a profit or protect against loss in a declining market.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

Thrivent financial advisors and professionals have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.