<topic sku="core" tNum="289138" author="sallyh" xmlns="x-schema:hhTopicSchema.xml"><index><title>Learn about traditional IRAs</title><category fLocale="cdn">investing</category><klink type="cncpt">Tell me about traditional IRAs</klink></index>
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<p>An IRA is a retirement account to which you make deductible or nondeductible contributions. You can choose what your IRA invests in, such as <glossary tNum="287088">stocks</glossary>, <glossary tNum="286954">bonds</glossary>, <glossary tNum="287038">money markets</glossary>, certain precious metals, or <glossary tNum="286965">CDs</glossary>. The main benefit of IRAs is that your income grows at a compounded rate without being taxed until you withdraw the money<mdash/>presumably in retirement when your overall tax bracket is lower.</p>
<p>Deductible contributions to your IRA reduce your taxable income. If you made $30,000 during the year and you put $3,000 of it into an IRA, your taxable income is $27,000. When you withdraw the money for your retirement (after age 59 1/2), you pay tax at your income tax rate at that time. </p>
<p>If you withdraw funds before age 59 1/2, you may have to pay income tax plus a 10% penalty on your withdrawal unless you qualify for an exception, such as qualified higher education expenses or medical expenses.</p>
<p>If you don't qualify to make deductible contributions to a traditional IRA, consider converting to a <glossary>Roth IRA</glossary>. With a Roth IRA, you pay no taxes when you make withdrawals at retirement.</p>
<p>Many other types of IRAs are available, including Roth IRAs, <glossary tNum="287084">SEP IRAs</glossary>, and <glossary tNum="287080">SIMPLE IRAs</glossary>. Talk to your tax professional about which IRA is best for you.</p>
