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Traditional IRA

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What is a Traditional IRA?

A Traditional IRA is an Individual Retirement Account to which you can contribute pre-tax or after-tax dollars, giving you immediate tax benefits if your contributions are tax-deductible. With a Traditional IRA, your money can grow tax-deferred, but you’ll pay ordinary income tax on your withdrawals, and you must start taking distributions after age 70½. Unlike with a Roth IRA, there are no income limitations to open a Traditional IRA. It may be a good option for those who expect to be in the same or lower tax bracket in the future.

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See if contributions are deductible

  • Depending on your income level, Traditional IRA contributions may be deductible from your taxable income.
     

See Traditional IRA withdrawal rules

  • Age 59 and under: Taxes and 10% penalty apply.
  • Age 59½ to 70: Taxes apply, but no penalties.
  • Age 70½  & over: Taxes apply, and distributions are required by law.

Compare different retirement accounts and learn their tax benefits and rules with our Roth IRA vs. Traditional IRA infographic.

 

Traditional IRA FAQs

Once you reach age 59½, you can withdraw funds from your Traditional IRA without restrictions or penalties. But keep in mind:
  • Your deductible contributions and earnings (including dividends, interest, and capital gains) will be subject to ordinary income taxes.
  • Once you reach age 70½, you must start taking Required Minimum Distributions (RMDs) each year from your Traditional IRA. You cannot redeposit your RMD.
  • You can take a premature distribution (known as a "60-day rollover") from your Traditional IRA once in a 12-month period without penalty—if you replace it within 60 days. If you don't pay back the distribution within 60 days, you'll have to pay ordinary income tax on the distribution.
If you're under age 59½, the U.S. government charges a 10% penalty—in addition to any ordinary income taxes due—on early withdrawals from a Traditional IRA, and a state tax penalty may also apply. However, you may be able to file a "penalty exception" for any of these reasons:
  • First-time home purchase
  • Educational expenses
  • Disability or death
  • Medical expenses
  • Health insurance
  • Periodic payments
  • Involuntary distribution
  • Reservist distributions

Note that with all of these exemptions, specific requirements and restrictions apply. Please check with your tax advisor to see if you qualify.


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Helpful Resources

  • Need help planning for retirement? Consider Schwab Intelligent Advisory™, our unique approach that combines professional advice with automated investing. .