What is a Traditional IRA?
A Traditional IRA is a tax-advantaged retirement account that lets you make potentially tax-deductible contributions and grow your investments tax-deferred until retirement. You generally don’t pay taxes on the growth until you withdraw the money, and withdrawals in retirement are taxed as ordinary income.
How does a Traditional IRA work?
A Traditional IRA has two defining features. First, your contributions may be tax-deductible now, depending on your income and whether you’re covered by a workplace plan. Second, your investments grow tax-deferred — you generally don’t pay tax on gains, dividends, or interest until you withdraw in retirement, when those withdrawals are taxed as ordinary income.
You can hold a range of investments inside a Traditional IRA — stocks, bonds, mutual funds, ETFs, and more — which lets you build a diversified portfolio aligned with your goals and risk tolerance. All investments carry risk, including the possible loss of principal, and past performance does not guarantee future results.
Traditional or Roth? As a general rule, a Traditional IRA may make sense if you expect to be in a lower tax bracket in retirement (you take the deduction now); a Roth IRA may make sense if you expect a higher rate later (tax-free qualified withdrawals). Your situation can be more nuanced — see Traditional IRA vs. Roth IRA.
Traditional IRA contribution limits and deduction rules (2026)
The IRS sets an annual contribution limit across all your IRAs combined. For 2026, you can contribute up to $7,500, or $8,600 if you’re age 50 or older (a $1,100 catch-up). Confirm the current figure on the IRS contribution-limits page.
Unlike a Roth IRA, a Traditional IRA has no income limit on who can contribute — anyone with taxable compensation (such as wages or self-employment income) can contribute, regardless of how high their income is. What income can affect is your ability to deduct the contribution, if you (or your spouse) are covered by a workplace retirement plan. For 2026, when you’re covered by a workplace plan, the deduction phases out over these MAGI ranges:
| Filing status | 2026 deduction phase-out (MAGI) |
| Single or head of household | $81,000–$91,000 |
| Married filing jointly — you’re the covered participant | $129,000–$149,000 |
| Married filing jointly — your spouse is covered, you’re not | $242,000–$252,000 |
| Married filing separately | $0-10,000 |
If neither you nor your spouse is covered by a workplace plan, your contribution is generally fully deductible regardless of income. And if your income is above your range and you’re covered by a plan, your contribution may be nondeductible — the point at which some higher earners look at a backdoor Roth IRA instead (it carries its own tax rules, including the pro-rata rule). Because these figures are adjusted periodically, confirm the current ranges on the IRS IRA deduction-limits page and IRS Publication 590-A before you file. You can generally contribute for a given tax year up until the federal tax-filing deadline the following spring.
Traditional IRA withdrawal rules, RMDs, and penalties
A few rules govern getting money out:
- Early-withdrawal penalty. If you withdraw before age 59½, you may owe income tax plus a 10% early-withdrawal penalty — though exceptions exist (for example, a first-time home purchase or qualified education expenses).
- Required minimum distributions (RMDs). You must generally begin taking RMDs at age 73 (rising to 75 for those born in 1960 or later, under SECURE 2.0). The amount is based on your account balance and life expectancy, and RMDs are taxed as ordinary income. See the IRS RMD rules.
- Taxes in retirement. Because contributions were pre-tax (if deducted), both contributions and earnings are typically taxed as ordinary income when you withdraw them.
Traditional IRA vs. Roth IRA and other retirement accounts
Choosing among retirement accounts comes down to your tax situation and what else you have access to. A few general points investors weigh:
- A Traditional IRA might be worth considering if you expect to be in a lower tax bracket in retirement.
- A Roth IRA could be worth exploring if you anticipate being in a higher tax bracket in retirement; Roth IRAs also generally have no required minimum distributions during the original owner’s lifetime.
- Where a 401(k) offers employer matching, some investors choose to contribute enough to capture the full match before funding an IRA.
This is general information, not personalized advice; individual situations vary. For a side-by-side, see Traditional IRA vs. Roth IRA, and to compare a retirement account with a taxable one, Brokerage account vs. IRA.
How to open a Traditional IRA with M1
Opening a Traditional IRA with M1 takes a few minutes: choose the Traditional IRA account type, set your target allocation, and fund it. M1’s distinguishing feature is automation — the account is built to invest and stay balanced on its own.
You set a target allocation once and M1 automatically directs each contribution to match those targets. Automatic rebalancing keeps the account aligned as you contribute and as markets move, and fractional shares allow the entire contribution to be invested rather than leaving an uninvested cash balance. With automatic recurring contributions, the account invests on a set schedule — a structured way to dollar-cost average toward retirement over time.
Automation handles the mechanics, not the market risk: choosing investments aligned with your goals and risk tolerance still matters. Many long-term investors consider a diversified mix of low-cost funds, though no single approach suits everyone, and all investing carries risk, including the possible loss of principal.
On cost, M1 charges a flat platform fee — not a per-trade commission, and not a percentage-of-assets management fee — and other fees may apply. See the M1 Fee Schedule for current amounts and terms, and compare M1’s Traditional, Roth, and SEP IRAs before opening one.
Traditional IRA advantages and drawbacks
Before deciding whether a Traditional IRA fits, weigh both sides:
Potential advantages: – Possible tax deduction on contributions (if eligible) – Potential tax-deferred growth – A range of investment options – No income limit on making contributions – Catch-up contributions after age 50
Potential drawbacks: – Withdrawals typically taxed as ordinary income in retirement – Required minimum distributions starting at age 73 – Potential 10% penalty on early withdrawals – Deduction limits if you (or your spouse) are covered by a workplace plan – Market risk, including the possible loss of principal.
The bottom line
A Traditional IRA can be a useful tool in a retirement plan — it offers potential tax-deductible contributions and tax-deferred growth. Whether it fits depends on your current and future tax situation, your other retirement accounts, and your long-term goals. It carries the same market risk as any investment account, including the possible loss of principal.
If you expect a higher tax rate in retirement, a Roth IRA may be worth comparing. When you’re ready, you can open a Traditional IRA with M1 in a few minutes.
Frequently asked questions about Traditional IRAs
Yes — you can generally contribute to both. But your ability to deduct the Traditional IRA contribution may be reduced or eliminated based on your income once you’re covered by a workplace plan (see the 2026 phase-out ranges above).
Withdrawing before age 59½ may trigger income tax plus a 10% early-withdrawal penalty, with exceptions for certain situations. Withdrawal treatment depends on your circumstances and IRS rules.
Yes — this is a Roth conversion. You’ll generally owe income tax on the amount you convert in the year you convert it, and the pro-rata rule may apply. Whether it makes sense depends on your situation. Educational information, not tax advice — consult a tax professional.
Required minimum distributions generally begin at age 73 (age 75 for those born in 1960 or later, under SECURE 2.0), based on your balance and life expectancy, and are taxed as ordinary income. See the IRS RMD rules.
Yes. The value of your investments can fluctuate with the market. A diversified portfolio and long-term strategy may help manage risk but do not guarantee against loss.
Updated July 26, 2026
This content is for informational purposes only and does not constitute investment or tax advice. M1 does not provide tax or legal advice. Consult with a qualified tax professional or attorney regarding your specific situation. Investing involves risk, including the potential loss of principal. Past performance does not guarantee future results. M1 Finance, LLC, an SEC registered broker-dealer and Member FINRA / SIPC. SIPC protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). For details, please see www.sipc.org.
This content was generated using artificial intelligence and is intended for informational and educational purposes only. While reasonable efforts are made to ensure accuracy, AI-generated outputs may omit key context and should not be construed as financial, investment, legal, or tax advice. Users should independently verify all information and consult a qualified professional before making any financial decisions.
SAIF-07232026-a065g6ka
