Traditional IRA

A Traditional IRA is an individual retirement account that allows you to contribute pre-tax dollars, giving most contributors an immediate tax break. For example, if you contributed $7,000 to your traditional IRA you would get a $7,000 tax deduction on your tax return. Investments in your account can then grow tax-deferred, meaning you won’t pay taxes on earnings until you withdraw funds in retirement. This allows the returns and gains that are earned to be reinvested, without paying taxes as you are building the account. You do take distributions into income at retirement, and this is why traditional IRAs are often referred to as tax-deferred accounts.  


As of 2024, more than 33% of U.S. households own an IRA—making it the most popular retirement account option for individuals outside of an employer 401(k). Traditional IRAs were the first IRA established and were rolled out in 1974 as part of the Employee Retirement Income Security Act (ERISA) to encourage individual retirement saving. Traditional retirement accounts are common among individuals seeking an immediate tax advantage and prefer to delay taxes until retirement when they may be in a lower tax bracket. 

Can I self-direct my existing Traditional IRA? 

Most Traditional IRA providers are brokers or banks and limit your investment options to stocks, ETFs, and mutual funds. If you want to invest in alternative assets like real estate, private funds, or start-ups, you can open a self-directed Traditional IRA with Directed IRA, and we’ll assist you in transferring your existing Traditional IRA funds. There is no penalty or tax to transfer funds from one Traditional IRA custodian to another, and you can move the entire balance or just a portion, depending on how much you want to self-direct in your Traditional IRA at Directed IRA.

Features & Advantages of a Traditional IRA  


• Tax-Deferred Growth: Contributions to a Traditional IRA grow tax-deferred, meaning earnings such as interest, dividends, and capital gains aren’t taxed until withdrawn. This allows your investments to compound without the drag of yearly taxes.  

• Tax-Deductible Contributions: Contributions may be fully or partially tax-deductible, depending on your income and participation in an employer-sponsored retirement plan. This upfront tax deduction can lower your taxable income, providing immediate savings. 

• Required Minimum Distributions (RMDs): Traditional IRAs require RMDs starting at age 73. 

• Alternative Asset Investments: Like Roth IRAs, Traditional IRAs can also be self-directed into alternative assets like real estate, private funds, startups, and more. To self-direct your IRA, you must open an account with an IRA custodian who allows these types of investments.  

• Higher Contribution Limits for Older Investors: If you’re 50 or older, you can take advantage of catch-up contributions, increasing your total contribution limit to save more for retirement.  

• Flexibility Rolling Over Funds: Funds can be moved from a 401(k) or other retirement account into a Traditional IRA without penalty or tax, allowing you to consolidate your savings into one account. This is particularly helpful for those who want to rollover funds to a self-directed IRA. 

• Penalty-Free Withdrawals for Qualified Expenses: Although withdrawing funds before age 59½ typically incurs a penalty or tax, exceptions exist for situations like first-time home purchases, qualified education expenses, or significant medical costs.  

• Traditional-to-Roth Conversions: You can convert funds from a Traditional IRA to a Roth IRA, paying taxes on the converted amount in the year of the conversion. This allows for future tax-free growth and withdrawals under Roth rules.