Summary:
Ever wondered what makes a traditional IRA so, well… traditional? In this episode of The Retirement Cheat Code, JD White breaks down the origins, rules, and quirks of the account that’s been helping Americans defer taxes since the 1970s. From contribution limits to deduction rules and how it fits into real-life retirement plans, JD explains why this account still earns a spot in many portfolios—and when it might make more sense to go Roth instead.
Hi everyone, JD White here, and welcome back to The Retirement Cheat Code. Today we’re unpacking the traditional IRA—what it is, where it came from, and how the rules work so you can make smarter decisions about your retirement savings.
A Quick History Lesson
IRA stands for Individual Retirement Account, and the “individual” part really means just that—you can’t have a joint IRA. The account was created in 1974 as a way for Americans to defer taxes on income they set aside for retirement, especially for people who didn’t have access to employer-sponsored plans like 401(k)s.
When the Roth IRA came along in 1997, the IRS needed a way to distinguish the old from the new—so the “traditional” label was born. Over the years, other versions joined the lineup (SEP, SIMPLE, rollover IRAs), but the traditional IRA remains the baseline.
How It Works
The big idea behind a traditional IRA is “pay taxes later.”
You contribute pre-tax money now, lower your taxable income today, and then pay taxes when you withdraw the funds in retirement—ideally in a lower tax bracket.
For 2025, the contribution limits are:
- $7,000 per person
- $8,000 if you’re 50 or older (that extra $1,000 is the “catch-up” contribution)
These limits are combined across all your IRAs—traditional and Roth. If you’ve got multiple IRAs, your total contributions can’t exceed those limits.
Deduction Rules
Normally, contributions to a traditional IRA are tax-deductible. But the deduction can be reduced or eliminated depending on:
- Your income
- Whether you or your spouse are covered by a retirement plan at work
If you’re married filing jointly, your household can contribute to two IRAs—even if only one spouse earns income. But if neither of you has earned income, you can’t contribute at all.
For 2025, the phase-out range for deductions starts at $126,000 and fully ends at $146,000 of modified adjusted gross income (MAGI). Over that threshold, you can still contribute—but your contribution becomes non-deductible.
Non-Deductible Contributions: When They Make Sense
Let’s say you earn too much for a deduction. You can still contribute, but now it’s called a non-deductible contribution—meaning you’ve already paid taxes on that money.
That contribution won’t help your tax bill this year, but the principal (the part you contributed) can come out tax-free in retirement. The growth, however, will still be taxed as ordinary income when you withdraw it.
So why bother? The main reason is to set up what’s known as a backdoor Roth IRA—a strategy where you make a non-deductible contribution to a traditional IRA and then convert it to a Roth later. It’s a clever workaround for high earners, though it comes with its own rules and timing considerations. JD promises to cover that in a future video (and it’s a good one).
When a Traditional IRA Makes Sense
In real life, most people use a traditional IRA when:
- They don’t have access to a 401(k) or similar employer plan
- They want to reduce taxable income in a high-earning year
- They’re contributing for a spouse with little or no earned income
- They’re rolling over funds from an old employer plan and want more investment control
It’s a versatile tool—but like anything in retirement planning, the best choice depends on your income level, tax bracket, and long-term goals.
The Bottom Line
The traditional IRA has been around for fifty years for a reason. It’s simple, flexible, and, when used wisely, can be a powerful part of your tax strategy. Whether it’s the right fit for you depends on whether “pay taxes later” makes more sense than “pay now, grow tax-free.”
If you enjoyed this video and found it helpful, please click the thumbs up button—it helps me know you’re learning from these. And if you’d like to keep up with future videos, especially the upcoming Roth IRA deep dive, hit that subscribe button. Thanks so much for your time, and I’ll see you on the next one.
