What is a Traditional IRA?

A traditional IRA is a type of self-funded retirement account available to people who earn wages. It is a means of sheltering some of your income from income taxes so you can save more for retirement.

It works like this. You open an IRA at a bank or other financial institution and put some money in, up to $5,000 a year ($6,000 if you are 50 or older). If you meet certain requirements, then your contributions are tax deductible, thus lowering your tax bill. If the money grows within your IRA, this growth is tax sheltered as well. You finally pay your income taxes on all this when you withdraw the money in retirement.

There are several limitations and requirements for putting money into and taking it out of an IRA. These and a wealth of other information can be found here: http://www.irs.gov/pub/irs-pdf/p590.pdf