Traditional IRA / 401(k)
Deduct now, grow tax-deferred, pay ordinary income tax on withdrawal.
What is Traditional IRA / 401(k)?
Contributions may be pre-tax or deductible, growth is tax-deferred, and every dollar withdrawn is taxed as ordinary income. Withdrawals before 59 1/2 generally incur a 10% penalty, and required minimum distributions begin at age 73.
Traditional IRA / 401(k): a worked example
$24,500 into a 401(k) - the 2026 employee limit - saves about $7,840 in tax this year in the 32% bracket, deferred to retirement.
What is the difference between Traditional IRA / 401(k) and Roth IRA / Roth 401(k)?
Traditional = deduction now, taxed later, RMDs apply. Roth = no deduction, tax-free later, no RMDs for the original owner. Choose on the bracket now versus in retirement.
Often confused with Roth IRA / Roth 401(k) - see Traditional IRA / 401(k) vs Roth IRA / Roth 401(k) side by side.
More terms in Taxes & Account Types
Capital Gain (Short-Term vs. Long-Term)
Profit on a sale, taxed by how long you held it.
Cost Basis
What you paid, used to compute gain or loss on sale.
Wash Sale Rule
A loss is disallowed if you rebuy the same security within 30 days.
Tax-Loss Harvesting
Realizing losses to offset gains and up to $3,000 of ordinary income.
Qualified Dividend
A dividend taxed at long-term capital gains rates.
Roth IRA / Roth 401(k)
Pay tax now, grow tax-free, qualified withdrawals are untaxed.
Required Minimum Distribution (RMD)
Mandatory annual withdrawals from tax-deferred accounts starting at 73.
Step-Up in Basis
Inherited assets reset to market value at the date of death.