Traditional IRA: Rules, Contribution Limits, and Withdrawals

A Traditional IRA is a tax-advantaged retirement account you fund with earned income, where contributions may be deducted from your taxable income now, investments grow without being taxed year to year, and you pay ordinary income tax on the money when you withdraw it in retirement. For 2026, you can put in up to $7,500, or $8,600 if you’re 50 or older. Whether the contribution actually lowers your tax bill depends on your income and whether you or your spouse is covered by a workplace retirement plan.

How the Tax Break Works

The account has two tax advantages working together. The first is the upfront deduction: if you qualify, every dollar you contribute reduces your taxable income for that year. The second is tax deferral inside the account. Dividends, interest, and capital gains generated by your investments are not taxed as they occur, so the full balance keeps compounding.

In a regular taxable brokerage account, you’d owe taxes each year on dividends and realized gains, leaving less money reinvested. Inside a Traditional IRA, nothing is skimmed off along the way. The trade-off comes at the end: withdrawals are taxed as ordinary income. You get the tax break now and settle up later, ideally in a year when your bracket is lower than during your working life.

Who Can Contribute

Anyone with earned income can contribute, at any age. Before 2020, contributions were prohibited after age 70½, but the SECURE Act of 2019 removed that cap. If you’re still working at 75, you can still contribute.

Earned income means wages, salaries, tips, bonuses, commissions, self-employment income, and nontaxable combat pay. Taxable alimony counts, but only under divorce agreements finalized on or before December 31, 2018. Certain graduate and postdoctoral fellowship stipends have qualified since 2020.¹ Investment income, rental income, pensions, and deferred compensation do not count.

If you’re married and one spouse has little or no earned income, the working spouse can fund a separate Traditional IRA on the other’s behalf. This spousal IRA requires filing a joint return, and combined contributions across both spouses cannot exceed the couple’s total taxable compensation for the year.²

2026 Contribution Limits and Deadline

The 2026 limit is $7,500. If you’re 50 or older by year-end, you can add a $1,100 catch-up contribution, for a total of $8,600.³ The cap applies across all your Traditional and Roth IRAs combined. Opening accounts at multiple firms doesn’t raise it.

You have until April 15, 2027, to make contributions for the 2026 tax year. Contributing early gives your money more time to compound tax-deferred. Overcontributing triggers a 6% excise tax on the excess for every year it stays in the account.² You can avoid the penalty by pulling out the excess and any earnings on it before your filing deadline, including extensions.⁴

When Contributions Are Deductible

Two factors determine whether you can deduct what you put in: your modified adjusted gross income (MAGI) and whether you or your spouse participates in a workplace plan such as a 401(k). If neither of you has a workplace plan, you can deduct the full contribution at any income level.

Once a workplace plan is in the picture, the deduction phases out across income bands the IRS adjusts each year. For 2026:⁵

Single or head of household, covered by a workplace plan: full deduction at MAGI of $81,000 or less, partial from $81,000 to $91,000, none above $91,000.
Married filing jointly, contributing spouse is covered: full deduction at $129,000 or less, partial from $129,000 to $149,000, none above $149,000.
Married filing jointly, contributor is not covered but spouse is: full deduction at $242,000 or less, partial from $242,000 to $252,000, none above $252,000.
Married filing separately, covered by a workplace plan: partial deduction under $10,000, none at $10,000 or above. This range is not adjusted for inflation.

Contributing When You’re Over the Income Limit

If your income is too high to deduct, you can still contribute. The money just goes in with after-tax dollars, and you’ll need to make sure you’re not taxed on it a second time when it comes back out.

The mechanism for that is Form 8606, which you file with your tax return in any year you make a nondeductible contribution.⁶ The form tracks your basis, meaning the running total of after-tax money you’ve put in. When you later take distributions, a proportional share is treated as a tax-free return of basis, and only the rest is taxed.

Skipping Form 8606 is one of the more expensive Traditional IRA mistakes. Without a basis record, the IRS treats the entire eventual withdrawal as pre-tax and taxes all of it. Reconstructing years of missing paperwork is difficult and sometimes impossible. File the form every year you make a nondeductible contribution, and keep copies.

Withdrawals and the Early Withdrawal Penalty

You can take money out at any time, but 59½ is the age that separates penalty from no penalty. Withdraw earlier and you typically owe a 10% early withdrawal penalty on top of ordinary income tax.⁷ After 59½, income tax still applies, but the penalty doesn’t.

Because deductible contributions and investment growth have never been taxed, most withdrawals are fully taxable as ordinary income. If you have basis from nondeductible contributions, a portion of each withdrawal comes out tax-free under the pro-rata calculation. Your custodian will withhold 10% for federal tax by default, and you can adjust or opt out of that withholding.⁸

Several situations waive the 10% penalty for withdrawals before 59½, though the income tax still applies:⁹

First-time home purchase, up to $10,000 over your lifetime.
Higher education expenses for you, your spouse, your children, or grandchildren.
Unreimbursed medical expenses exceeding 7.5% of your adjusted gross income.
Health insurance premiums paid while unemployed, after receiving unemployment compensation for at least 12 weeks.
Total and permanent disability.
A series of substantially equal periodic payments, often called a 72(t) plan.
Birth or adoption, up to $5,000 per child, within one year of the event.
Federally declared disaster, up to $22,000 if you had an economic loss from a qualifying disaster.
Domestic abuse, up to the lesser of $10,000 or 50% of the account balance.
Amounts the IRS seizes from the account under a levy.

Penalty-free is not the same as tax-free. People sometimes learn that the hard way at filing time.

Required Minimum Distributions

Tax deferral eventually ends. At a certain age you must begin taking required minimum distributions (RMDs), and the SECURE 2.0 Act ties the starting age to your birth year:¹⁰

Born 1951 through 1959: RMDs begin at 73.
Born 1960 or later: RMDs begin at 75.

Your first RMD can be delayed until April 1 of the year after you reach the applicable age. Delaying means taking two distributions in the same calendar year, which can push you into a higher bracket. Each year’s RMD equals your prior year-end balance divided by a life expectancy factor from IRS tables.

Miss an RMD and you owe a 25% excise tax on the shortfall. Catch it and take the missed amount within two years, and the penalty drops to 10%.¹⁰ Most custodians can automate the withdrawal.

What Happens to the Account When You Die

Beneficiary rules depend on who inherits. A surviving spouse who is the sole beneficiary can roll the account into their own IRA and treat it as their own, or keep it as an inherited IRA and take distributions over their own life expectancy.¹¹

Most non-spouse beneficiaries who inherited from someone who died in 2020 or later must empty the account by the end of the tenth year after the original owner’s death. There are no required annual withdrawals during that window, but everything has to be out by the deadline.¹¹

A narrower group qualifies as eligible designated beneficiaries and can stretch distributions over their own life expectancy: minor children of the account owner (not grandchildren) until they reach the age of majority, disabled or chronically ill individuals, and beneficiaries no more than 10 years younger than the deceased owner. When a minor child reaches adulthood, the 10-year clock starts.

Beneficiary designations on the account itself control who inherits, regardless of what your will says. Updating them after marriage, divorce, or the birth of a child is worth doing on time.

1
Internal Revenue Service. Publication 590-A – Contributions to Individual Retirement Arrangements (IRAs)
2
Internal Revenue Service. Retirement Topics – IRA Contribution Limits
3
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
4
Internal Revenue Service. IRA Year-End Reminders
5
Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs
6
Internal Revenue Service. About Form 8606 – Nondeductible IRAs
7
Internal Revenue Service. Retirement Plans FAQs Regarding IRAs – Distributions (Withdrawals)
8
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
9
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
10
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
11
Internal Revenue Service. Retirement Topics – Beneficiary