Traditional IRA

What a traditional IRA is

Anyone with earned income can contribute to a traditional IRA. Whether the contribution is deductible depends on income and on whether the person or their spouse is covered by a workplace plan. Earnings grow tax-deferred, withdrawals are taxed as ordinary income, and required minimum distributions generally start at age 73.

Why it matters to employers

Traditional IRAs touch an employer’s plan in three ways. They are where many former employees roll over their 401(k) balances. They are the accounts behind SEP IRA and SIMPLE IRA plans. And once you offer a 401(k), your employees become “active participants,” which can limit how much of a traditional IRA contribution they can deduct.

Example with 2026 figures

In 2026 a single employee covered by your 401(k) can deduct a full traditional IRA contribution with income up to $81,000, and the deduction phases out by $91,000. For a married couple filing jointly where the contributor is covered, the range is $129,000 to $149,000. If only the spouse is covered, it is $242,000 to $252,000.

For 2027 the limit stays $7,500, or $8,600 at age 50 or older. (IRS Notice 2026-66)

Common mistakes

• Assuming “not deductible” means “not allowed.” Nondeductible contributions are permitted and tracked on IRS Form 8606.

• Treating the limit as per account. The $7,500 limit covers all of a person’s traditional and Roth IRAs combined.

• Telling employees that joining the 401(k) has no effect on their IRA deduction.