Traditional IRA Tax-Deferred Chart: Limits, RMDs, and Rollovers

A Traditional IRA is tax-deferred, which means the money inside it grows year after year without any tax on dividends, interest, or capital gains, and you only pay federal income tax when you take the money out in retirement. Depending on your income and whether you have a workplace retirement plan, the contribution itself may also be deductible in the year you make it. Those two features, deferred growth and a possible upfront deduction, are the core of how the Traditional IRA tax-deferred rules work.¹

How Tax-Deferred Growth Works

In a regular brokerage account, every dividend payment, interest deposit, and profitable sale triggers a tax bill that same year. Even if you reinvest, a slice goes to the IRS first. Inside a Traditional IRA, none of that happens. Dividends reinvest at their full value. You can sell one fund and buy another with no capital gains tax. The whole balance keeps compounding with no annual tax drag.

The gap widens over time. Consider $7,500 a year for 25 years at an average 7% return. In a taxable account losing roughly 1% to 1.5% a year to taxes on dividends and realized gains, the effective growth rate falls to around 5.5% to 6%. Across 25 years, that drag can leave you with tens of thousands of dollars less than the same portfolio sheltered inside a Traditional IRA.

The trade-off is at the other end. When you withdraw, every dollar of a fully deductible contribution and all its growth is taxed as ordinary income at whatever bracket you’re in that year. If your retirement bracket is lower than your working bracket, you win twice: you skipped tax at a high rate and pay it at a low one. If your bracket stays the same or rises, the benefit narrows but doesn’t vanish, because you still got decades of compounding on money that would otherwise have gone to tax.

What You Can Contribute in 2026

The 2026 limit is $7,500, up from $7,000 in 2024 and 2025. If you’re 50 or older by year end, you can add a $1,100 catch-up, for a total of $8,600.¹ That cap is the combined total across all your Traditional and Roth IRAs. Split it however you like; just don’t exceed it.

You also can’t contribute more than your taxable compensation for the year. Earn $4,000 in wages and $4,000 is your ceiling.² A non-working spouse gets a workaround: through a spousal IRA, they can contribute up to the full limit as long as the couple files jointly and the working spouse earns enough to cover both.

Over-contribute and the IRS charges a 6% excise tax on the excess for every year it sits in the account.³ Pull the extra out (with any earnings on it) before your tax filing deadline including extensions and the penalty goes away.

When the Deduction Phases Out

Anyone with earned income can contribute. Whether you can deduct the contribution is a separate question that turns on your income and on whether you or your spouse is covered by a workplace retirement plan like a 401(k). The deduction is authorized by 26 U.S.C. § 219 and phases out at higher incomes for people already covered at work.²

The 2026 Modified Adjusted Gross Income (MAGI) phase-out ranges:¹

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 covered by a workplace plan: full deduction at $129,000 or less, partial from $129,000 to $149,000, none above $149,000.
Married filing jointly, you’re not covered but your 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 indexed to inflation.

If neither you nor your spouse is covered by a workplace plan, the full deduction is available at any income level. MAGI is essentially your adjusted gross income with certain items added back, including student loan interest deductions and foreign earned income exclusions. Inside a phase-out window, your allowed deduction shrinks proportionally as you move through the range.

Non-Deductible Contributions

Earning too much to deduct doesn’t shut you out of the account. You can still contribute on a non-deductible basis. There’s no upfront tax break, but the growth inside the account is still tax-deferred, and when you take distributions later, only the earnings portion is taxable because you already paid tax on the contribution.

File IRS Form 8606 for every year you make a non-deductible contribution.⁴ The form is your paper trail for cost basis. Skip it and you may end up paying tax twice on the same dollars, with little recourse.

Taking Money Out Before 59½

Pull money out before age 59½ and you owe a 10% additional tax on top of ordinary income tax on the withdrawal.⁵ A $20,000 early withdrawal in the 22% bracket costs $4,400 in income tax plus a $2,000 penalty, or $6,400 combined.

Several exceptions waive the 10% penalty, though you still owe ordinary income tax on the amount withdrawn:

Permanent disability.
Substantially equal periodic payments based on life expectancy, which once started must continue for at least five years or until you reach 59½, whichever is later.
Unreimbursed medical expenses above the deductible threshold under federal tax rules.
Health insurance premiums while unemployed, if you received unemployment benefits for at least 12 consecutive weeks.
First-time home purchase, up to a $10,000 lifetime cap; each spouse can use $10,000 from their own IRA.
Birth or adoption, up to $5,000 per child per parent within 12 months of the event.
Amounts seized by an IRS levy.
Qualified reservist distributions for military reservists called to active duty for at least 180 days.

People routinely underestimate the total cost of an early withdrawal because they focus on the 10% and forget the income tax layer under it.

Required Minimum Distributions

Deferral doesn’t last forever. At some point the IRS makes you start withdrawing so it can collect the tax it postponed. These are required minimum distributions (RMDs), and the trigger age depends on your birth year:

Born 1951 through 1959: RMDs begin the year you turn 73.
Born 1960 or later: RMDs begin the year you turn 75.

Your first RMD is due by April 1 of the year after you reach your trigger age. Every RMD after that is due by December 31. Delaying that first one until April means two RMDs in the same calendar year, which can shove you into a higher bracket.

The amount is your December 31 prior-year balance divided by a life expectancy factor from IRS tables. The factor shrinks as you age, so the required percentage grows over time. Every RMD dollar from a fully deductible Traditional IRA is taxed as ordinary income at your current marginal rate.⁵

Miss an RMD or take too little and the penalty is 25% of the shortfall. Fix it inside the correction window, which generally runs through the end of the second taxable year after the penalty was imposed, and the rate drops to 10%.⁶

If you’re at least 70½ and give to charity, you can send up to $111,000 a year directly from your IRA to a qualifying charity as a qualified charitable distribution. It counts toward your RMD and stays out of your taxable income, but the transfer has to go straight from the custodian to the charity.⁷

Rollovers Without Triggering Tax

Moving money between retirement accounts is routine, but the mechanics are unforgiving.

A direct transfer (trustee-to-trustee) moves the money from one custodian to another without you touching it. No tax event, no reporting hassle, no limit on how often you do it.

An indirect rollover is where people get burned. The custodian sends you a check and you have 60 days to redeposit the full amount into another IRA or eligible retirement plan. Miss the deadline and the whole distribution is taxable, plus you may owe the 10% early withdrawal penalty if you’re under 59½.⁸ You’re also limited to one indirect rollover across all your IRAs in any 12-month period, with Traditional, Roth, SEP, and SIMPLE accounts treated as a single pool.⁹ A second one within that window becomes a taxable distribution.

Roth conversions from a Traditional IRA don’t count against that one-per-year limit, and neither do rollovers between an IRA and an employer plan like a 401(k).

What Happens to an Inherited Traditional IRA

For deaths in 2020 or later, most non-spouse beneficiaries have to empty the inherited Traditional IRA by the end of the 10th year after the owner’s death.¹⁰ There’s no minimum required each year within that window, but the account has to be zero by the deadline, and every distribution is taxed as ordinary income.

A surviving spouse can roll the account into their own IRA and treat it as their own, pushing RMDs to their own required beginning date. Five categories of eligible designated beneficiaries can stretch distributions over their own life expectancy instead of following the 10-year rule:¹⁰

Surviving spouses.
Minor children of the account owner, until they reach majority, when the 10-year clock then starts.
Disabled individuals.
Chronically ill individuals.
Beneficiaries no more than 10 years younger than the deceased owner.

Everyone else, including adult children, siblings, and friends, falls under the 10-year rule.

State Tax in Retirement

Federal deferral is only half the picture. Most states also tax IRA withdrawals as ordinary income when you take them in retirement. State rates on those distributions range from 0% to over 13%. A few states impose no income tax at all; others exempt some portion of retirement income. What matters is where you live when you withdraw, not where you lived when you contributed. For anyone weighing a retirement move, the state-tax difference on IRA withdrawals can run into thousands of dollars a year.

1
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
2
Office of the Law Revision Counsel. 26 USC 219 – Retirement Savings
3
Office of the Law Revision Counsel. 26 USC 4973 – Tax on Excess Contributions to Certain Tax-Favored Accounts
4
Internal Revenue Service. About Form 8606, Nondeductible IRAs
5
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
6
Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans
7
Internal Revenue Service. Notice 2025-67 – 2026 Amounts Relating to Retirement Plans and IRAs
8
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
9
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
10
Internal Revenue Service. Retirement Topics – Beneficiary