Traditional IRA Explained in 5 Minutes (Tax-Deferred Retirement Account in 2024)

Open a Traditional IRA here: optimizedportfolio.com/go/m1
In this video I'll explain what a Traditional IRA is, who they're for, when to contribute, and where, why, and how to open one in 2024.
// TIMESTAMPS:
00:00 - Intro
00:07 - What Is a Traditional IRA?
00:31 - Who Can Contribute To a Traditional IRA?
00:43 - How Does a Traditional IRA Work?
02:11 - Traditional IRA Investments
02:27 - When To Contribute To a Traditional IRA
02:52 - Traditional IRA Income and Contribution Limits for 2024
03:51 - Recap
04:09 - Traditional IRA Advantages
04:22 - Traditional IRA Disadvantages
04:37 - How To Open a Traditional IRA
04:57 - Outro
// SUMMARY:
A Traditional IRA is simply a U.S. retirement savings vehicle by which investors contribute pre-tax income, that money grows tax-deferred, and the withdrawals later in retirement are taxed as ordinary income.
The Traditional IRA was established in 1974 by the Employee Retirement Income Security Act. IRA stands for individual retirement account. As the name suggests, this is an account designed to help individuals save for retirement.
The main function of the Traditional IRA is that contributions are made with pre-tax dollars (in most cases they are tax-deductible), those contributions are allowed to grow tax-deferred, and withdrawals later in retirement are taxed as ordinary income. In other words, contributions to a Traditional IRA are taxed on the back end and not on the front end.
You have a wide variety of things you can invest in inside a Traditional IRA, including mutual funds, ETFs, stocks, bonds, money market funds, certificates of deposit (CDs), cryptocurrency, and more. You can even hold investment real estate in a Traditional IRA.
Advantages of the Traditional IRA include a variety of investment options, no income limit to open the account, possible current-year tax deductions for contributions, tax-deferred growth, and a good choice for those in a lower tax bracket in retirement. Disadvantages of the Traditional IRA include withdrawals being taxed as ordinary income, taxes and penalties on early withdrawals, RMD's after age 73, reduced deduction eligibility for high income earners, and a low contribution limit compared to a 401k.
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Disclaimer: This is not financial advice, investing advice, or tax advice. The information presented is for informational, educational, and entertainment purposes only. Investment products discussed are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here: www.optimizedportfolio.com/te...
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[@OptimizedPortfolio]

Do you have a Traditional IRA?

[@samayoa95]

No

[@dannyrand1733]

I like this guy. Straight to the point. No fluff.

[@OptimizedPortfolio]

😎

[@russellgray3303]

Thank you for the video!!! We learn a lot from you! Thank you!

[@OptimizedPortfolio]

Glad to hear it!

[@DzDivz]

Seems pretty solid, but there are always exceptions. Can't beat the return on a matched 401k. Also, depending on income, you may have to contribute to a traditional IRA so you can backdoor into your Roth. Always good to know all the options. 😀

[@ASHANTIGHAZIKHALIF]

Awesome!

[@OptimizedPortfolio]

Glad you think so!

[@mattgoldberg4335]

But where, specifically, do you enter the deduction on your income tax form(s)?

[@OptimizedPortfolio]

Line 32

[@pedrolambrusco8190]

I don't think that you mentioned what is the oldest age that you can contribute to a traditional IRA. Do you know what it is? Thanks.

[@OptimizedPortfolio]

There's not one.

[@brendafleming231]

Help me understand please (no judgement please!) I make monthly contributions to an IRA from my paycheck so that money has been taxed. Then, when I go to withdraw that money someday from my IRA I’ll be taxed again. How am I not being double taxed?

[@OptimizedPortfolio]

That sounds like a 401k. IRA contributions do not come out of one's paycheck. If it's a regular/traditional 401k, contributions are made pre-tax and withdrawals are taxed later. If it's a Roth 401k, contributions are made post-tax and withdrawals later are tax-free. If a Traditional IRA like I discussed here, you get a current-year tax deduction for those contributions and pay taxes later. If a Roth IRA, contributions are made with after-tax dollars and withdrawals later are tax-free. There is no double taxation in any of these scenarios. Roth IRA video is here: kzbin.info/www/bejne/mmerqoqDmdaSldE I've got a video coming soon on how it compares to a 401k.

[@brendafleming231]

It’s a traditional IRA that I make monthly payments to so what I must be forgetting is when I file my taxes I get a tax deduction for that IRA account correct? Sorry, I must sound pretty uneducated.

[@fadisalem2710]

I have a question about this matter. So if I were to draw out only the principle money from one roth ira to my bank account and then transfer the same money to the other roth ira account, could that be considered like an indirect rollover?

[@OptimizedPortfolio]

Doesn't make sense. Why would you have 2 Roth IRA's in the first place?

[@fadisalem2710]

@OptimizedPortfolio Honesty I thought there would be more of a benefit. Like more insurance more security.

[@OptimizedPortfolio]

@@fadisalem2710 Nope

[@alrocky]

@@fadisalem2710 You can transfer more than just contributions from one IRA custodian to another IRA custodian. A direct custodian to custodian is preferred but if you choose to receive the withdrawal, you have 60 days to deposit it to new custodian.

[@epic5945]

What's the point of having a beneficiary for a Traditional IRA if you're going to have to take deductions at age 73? It seems like there would be less money to leave the beneficiary.

[@OptimizedPortfolio]

In case you die. Good observation, though. That's why the Roth is the preferable choice for a wealth transfer vehicle, which I mentioned in my video on it: kzbin.info/www/bejne/mmerqoqDmdaSldE

[@d.lami.6990]

What about dividends paid inside the IRA Can they be reinvested automatically

[@OptimizedPortfolio]

Yes

[@d.lami.6990]

@@OptimizedPortfolio The 55 rule does that allow me to move my 401k into a traditional IRA. Since I am 58 and my job was eliminated due to the factory shutting down.??

[@skippersvr7852]

but where do u mention the car bombs?

[@OptimizedPortfolio]

wut

[@TJ-Stackin]

Hard Pass on the IRA and 401k's. Hsa and Roth all the way!