A Traditional IRA is a retirement account that may provide tax advantages today while allowing your investments to grow over time.
It’s commonly used to reduce taxable income now and defer taxes until retirement.
What Is a Traditional IRA?
A Traditional IRA (Individual Retirement Account) is a tax-advantaged account designed for retirement savings.
With a Traditional IRA:
Contributions may be tax-deductible (depending on income and plan coverage)
Your investments grow tax-deferred
Withdrawals are taxed as ordinary income
Contributions
You may be able to deduct some or all of your Traditional IRA contributions from your taxable income.
Whether your contribution is deductible depends on:
Your income level, and
Whether you (or your spouse) are covered by a workplace retirement plan
Contribution limits and deduction rules are set by the IRS and may change annually.
For the most current information, visit:
Distributions (Withdrawals)
Withdrawals from a Traditional IRA are subject to specific IRS rules.
Withdrawals in Retirement
Withdrawals are taxed as ordinary income
You can take penalty-free withdrawals beginning at age 59½
Early Withdrawals
If you take a withdrawal before age 59½:
The distribution is generally subject to:
Income taxes, and
A 10% additional tax (penalty)
Certain exceptions may apply under IRS rules (such as qualified education expenses or first-time home purchase)
Required Minimum Distributions (RMDs)
You must begin taking required minimum distributions starting at age 73 (under current law)
The amount is calculated based on IRS life expectancy tables
Key Benefits of a Traditional IRA
Potential Tax Deduction
You may be able to reduce your taxable income in the year you contribute.
Tax-Deferred Growth
Earnings are not taxed until withdrawn.
Upfront Tax Advantage
Provides potential immediate tax savings.
Who Should Consider a Traditional IRA?
A Traditional IRA can be beneficial for individuals who:
Want to reduce taxable income today, and
Expect their tax rate in retirement to be lower than it is currently
In contrast, a Roth IRA may be more appropriate for individuals who expect their tax rate to be higher in retirement.
How a Traditional IRA Works on Harvest
With Harvest, you can open and manage a Traditional IRA directly in the app:
Open an account in minutes
Receive a faith-aligned portfolio recommendation
Invest in biblically screened ETFs
Track your progress over time
Important Considerations
Contributions may not be fully deductible depending on income and plan coverage
Withdrawals are taxed as ordinary income
Early withdrawals may be subject to taxes and penalties
Required minimum distributions apply starting at age 73
Investing involves risk, including possible loss of principal
The Bottom Line
A Traditional IRA offers tax-deferred growth and the potential for a current-year tax deduction.
It is commonly used by individuals seeking immediate tax benefits while saving for retirement.
Disclosure
This content is for informational and educational purposes only and should not be construed as investment, tax, or legal advice. Harvest is a registered investment advisor. All investments involve risk, including the possible loss of principal. Past performance is not indicative of future results. You should consult with a qualified tax or legal professional regarding your specific situation. For detailed rules regarding IRA contributions, distributions, and eligibility, please refer to the IRS website (https://www.irs.gov/retirement-plans/individual-retirement-arrangements-iras).