Traditional IRA
Definition
An individual retirement account where contributions may be tax-deductible, reducing your current taxable income. Investment gains grow tax-deferred until withdrawal in retirement, when they're taxed as ordinary income. The 2025 contribution limit is $7,000 ($8,000 if age 50+). Deductibility depends on your income and whether you're covered by an employer retirement plan.
Example
Contributing $7,000 to a traditional IRA when you're in the 22% bracket saves you $1,540 on this year's taxes. You'll pay tax when you withdraw the funds in retirement.