(LifeWire) - Definition: A traditional IRA is a form of an individual retirement savings account. In most cases, contributions are tax-deductible in the year in which they are made, and money in an IRA grows tax deferred until it is withdrawn.
As of 2008, contributions to traditional IRAs are limited to $5,000 a year per person, or to $6,000 for those age 50 and over. Withdrawals are taxed as income in retirement, but withdrawals before age 59-1/2 typically face a 10 percent penalty plus tax. Workers who contribute to an employer-sponsored retirement plan, such as a 401(k), can still contribute to a traditional IRA, but tax deductions for their IRA contributions disappear if their income exceeds certain levels.
