Traditional IRAs provide many personal benefits as well as tax benefits. IRA stands for Individual Retirement Arrangement, and having one allows you to make tax-deferred investments in a retirement account. So, you can grow your retirement savings while not paying taxes on your contributions until you withdraw the money from your account. But some people may also qualify to receive the tax benefits of a Roth IRA. This article will discuss what traditional and Roth IRAs are and how they may affect your taxable income.

Traditional IRA vs. Roth IRA

When people refer to IRAs, they usually are referring to 2 different types: the traditional IRA and the Roth IRA. Both plans are personal retirement accounts, and they generally penalize you for withdrawing money from it before age 59 ½.  Many people find this age limit helpful, though, because it encourages them to not withdraw from the money pot before they’re ready to retire unless they absolutely have to. 

Still, traditional and Roth IRAs differ in a few key ways. Chiefly, the Roth IRA’s contributions may not be tax deductible, but owners usually do not have to pay taxes when withdrawing those funds. Traditional IRAs, on the other hand, may be tax deductible (depending on the filer’s eligibility), but people will need to pay taxes once the funds are distributed. 

Roth IRAs also have income eligibility requirements. For an example that applies to the 2024 tax year: a single filer or head of household can’t make more than $146,000 in Modified Adjusted Gross Income (which is your Adjusted Gross Income with some of the adjustments added back) in order to qualify for contributing the maximum amount to a Roth IRA. If you make more than this, the amount you’re allowed to contribute decreases. Once you make more than $161,000, you can no longer contribute to a Roth IRA. Traditional IRAs don’t have these income limits. So, they’re more accessible to a wide range of people than a Roth would be, and traditional IRAs may give you more tax benefits if you qualify.

Regardless of whether you contributed to an IRA in 2024, H&R Block is here to help you file your taxes and get the most out of your return if you qualify (not everyone is required to file a tax return). Work with their online DIY tax filing tool with included human help at your fingertips. Or, you can have a tax pro file your taxes for you!

How Does a Traditional IRA Lower Your Taxable Income?

With a traditional IRA, you may be able to deduct your contributions from your income. That means you won’t pay taxes on this income yet, even if you earned it within the current tax year.

For example, let’s say you make $5,000 a month and contribute 25% of that (so $1,250) a month into your traditional IRA. That $1,250 will remain untaxed until you withdraw it. Note that for tax year 2024, you can contribute up to $7,000 to your IRA if you’re under 50 or $8,000 if you’re 50 or older.

In addition, IRAs invest your money, allowing it to grow over time. You won’t pay taxes on this growth until you withdraw it, either!

Other Tax Benefits of a Traditional IRA 

Working with H&R Block when you file your taxes helps you explore all the benefits you may be eligible to receive. H&R Block’s online filing tool guides you through the process and helps you determine which benefits you might be eligible to receive. Likewise, if you prefer to file with a tax pro, they can help you find the right tax benefits if you qualify for them.

Traditional IRAs don’t just enable you to grow your retirement funds; they also allow eligible people to deduct their contributions on their tax returns.

Filers who aren’t covered by an employer’s retirement plan (or their spouse’s employer’s retirement plan, if applicable) can take the full tax deduction from their IRA contributions. Those who are covered under an employer’s retirement plan may also be eligible for partial tax deductions provided they meet the income requirements. 

Here’s more information about income requirements for the 2024 tax year:

• For single taxpayers who have an employer retirement plan, eligibility for tax deductions phases out with an income between $77,000-$87,000.
• If you and your spouse file jointly and the person making the IRA contribution is covered by an employer retirement plan, the phase-out range is between $123,000-$143,000.
• If the IRA contributor is not covered by an employer retirement plan but has a spouse who is, the phase-out range is between $230,000-$240,000.
• For a married individual who has a workplace retirement plan and is filing a separate return, the phase-out range is between $0-$10,000.

Taxes Made Simple

Whether or not you qualify for the tax benefits of a traditional IRA, you can enjoy retirement plans deferring taxes on your contributions. When you use H&R Block, you also don’t have to stress out about filing since their tools and filing services make it easy! 

Here are some more tax tips!