Traditional IRAs
Learn how traditional IRAs work — and why they still make sense for many investors.
We encourage you to consult your tax advisor or financial professional to discuss your financial goals, eligibility and individual tax situation. For additional information, you can also refer to IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), and IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs), at irs.gov.
Eligibility
You (or your spouse, if filing a joint return) can contribute if you have taxable compensation (a salaried job, investments and other sources).
Annual contributions
For 2023, the IRA annual contribution limit is $6,500 or 100% of your compensation, whichever is less.
Catch-up provisions
For 2023, individuals age 50 and older may contribute up to an additional $1,000 to their IRAs.
Contribution deadline
Contributions for the current tax year must be made by April 15 of the following year.
Deductible contributions
Depending on your tax-filing status, modified adjusted gross income (MAGI) limits and retirement plan participation, you may be eligible to deduct your full contribution, part of it or none of it. Your MAGI is calculated by subtracting certain expenses and allowable adjustments from your gross income. To determine your MAGI, contact your tax advisor.
Use the table below to determine who can take a deduction.
Nonparticipants in a retirement plan
Nonrefundable tax credits
Eligible taxpayers can claim a nonrefundable tax credit for contributions to their IRAs. The maximum credit allowed is 50% of total annual contributions up to $2,000, so long as household income doesn't exceed certain limits.
For 2023, joint filers with a MAGI of $73,000 or less and single filers with a MAGI of $36,500 or less qualify.
Unemployed spouses
Unemployed spouses (or spouses not covered by a retirement plan at work) can make tax-deductible contributions to an IRA, even if the other spouse is covered by a retirement plan at work.
Up to $6,500 in 2023 (spouses age 50 and older may contribute an additional $1,000) may be contributed as long as the couple files a joint tax return with compensation equal to or exceeding the IRA contributions for the year.
If the employed spouse is covered by a retirement plan, the unemployed spouse can make tax-deductible contributions to an IRA if the couple’s combined MAGI is less than $218,000 for 2023. The deduction is phased out if the couple’s combined MAGI is between $218,000 and $228,000.
Penalty-free early withdrawals
You may withdraw money penalty-free before age 59½ for any of the following reasons:
- A first-home purchase, up to $10,000 (lifetime maximum)
- Qualified higher education expenses for yourself, a spouse, child or grandchild
- Contributions made with after-tax money
- Certain periodic payments, medical expenses and health insurance premiums
- If assessed with a levy by the IRS
- Upon disability or at death
- Payments made while you are terminally ill
- Payments of up to $22,000 made in connection with federally declared disasters
- Birth or adoption expenses (up to $5,000)
These exceptions are often referred to as 72(t) provisions because they fall under Internal Revenue Code Section 72(t).
All withdrawals are taxed as ordinary income.
Setup and annual fees
Capital Group traditional IRA fees include:
- A one-time setup charge of $10 per Social Security number
- An annual custodian fee of $10 per Social Security number
Note: The setup charge and annual fee discussed above also cover SEP accounts with the same Social Security number. A separate $10 setup charge and annual custodian fee apply to the following accounts:
- Roth IRAs
- SIMPLE IRAs
Converting to a Roth IRA
- Assets in a traditional IRA may be converted to a Roth IRA regardless of your MAGI or tax filing status.
- Required minimum distributions (RMDs) from the traditional IRA are not considered part of the MAGI. Investors age 73 and older who would be subject to RMDs from their traditional IRAs may be able to convert to a Roth and avoid future distributions. The SECURE 2.0 Act increased the age when RMDs must begin from 72 to 73, effective for individuals turning 72 on or after January 1, 2023. If you reached age 72 before this date, you are still required to take RMDs. Investors should consult with their financial professionals to determine the best option for their situations.
- The taxable portion of the converted amount will be treated as taxable income.
- Future contributions can be made to the new Roth IRA.
- A conversion must be initiated by December 31 of a given year to be considered a conversion for that taxable period.
Converting to a Roth IRA is a taxable event, and the rules and tax calculations can be complicated. State income-tax rules for conversions may differ from federal rules. We encourage you to discuss conversion options with your tax advisor or financial professional.
Share classes for rollover IRAs
Rollovers from retirement plans must be invested in Class A shares (generally with a front-end sales charge) or in Class C or F shares, according to the purchase policies described in each mutual fund’s prospectus.
Additional information
Each investor's situation is unique, so we encourage you to consult your tax advisor or financial professional to discuss your situation. For additional information about traditional and Roth IRAs, you can also refer to IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), and IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs), at irs.gov.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
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American Funds Distributors, Inc.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.