Types of Traditional Ira
There are two primary categories of Traditional IRAs, distinguished by their contribution and deduction rules: Deductible Traditional IRA and Nondeductible Traditional IRA.
Main Categories
- Deductible Traditional IRA — a type of Traditional IRA where contributions are tax-deductible, and earnings grow tax-deferred, with Fidelity Investments offering this type of IRA account.
- Nondeductible Traditional IRA — a type of Traditional IRA where contributions are made with after-tax dollars and are not tax-deductible, but earnings still grow tax-deferred, with Charles Schwab offering this type of IRA account.
- Rollover Traditional IRA — a type of Traditional IRA that allows individuals to transfer assets from a previous employer-sponsored retirement plan, such as a 401(k), to an IRA account, with Vanguard offering this type of IRA account.
- Inherited Traditional IRA — a type of Traditional IRA that is inherited by a beneficiary, with T. Rowe Price offering guidance on managing inherited IRAs.
Comparison Table
| Category | Contribution Limit | Tax-Deductibility | Income Requirement |
|---|---|---|---|
| Deductible Traditional IRA | $6,000 (2022) | Tax-deductible | Phased out at $76,000-$91,000 (2022) |
| Nondeductible Traditional IRA | $6,000 (2022) | Not tax-deductible | No income limit |
| Rollover Traditional IRA | No limit | Tax-deductible (if eligible) | No income limit |
| Inherited Traditional IRA | N/A | Not tax-deductible | N/A |
How They Relate
The Deductible Traditional IRA and Nondeductible Traditional IRA are often confused due to their similar names, but they have distinct tax implications. The Rollover Traditional IRA is commonly used in conjunction with a Deductible Traditional IRA, as individuals may roll over assets from a previous employer-sponsored plan to a Deductible Traditional IRA account. The Inherited Traditional IRA is a separate category that is not directly related to the other types, but rather is a result of inheriting an IRA account from a deceased individual. Fidelity Investments and Charles Schwab often provide guidance on managing Inherited Traditional IRAs, while Vanguard specializes in Rollover Traditional IRAs. Additionally, T. Rowe Price offers investment options for all types of Traditional IRAs, including Deductible Traditional IRA and Nondeductible Traditional IRA accounts.