The concept of retirement is changing. Many people are living longer, which means people are spending their later years starting a second career, volunteering, traveling, or going back to school – to learn or to teach.
Getting older no longer has to mean retirement in the traditional sense. It means the freedom and flexibility to live the life you’ve always wanted. That’s why today, more than ever, consider opening an IRA.
An IRA is an Individual Retirement Account – but we at Aspiration think of it as an “Individual Reinvention Account.”
Here’s what you need to know.
What Is a traditional IRA?
A traditional IRA is an individual retirement account (IRA) designed to help people save for retirement, with taxes deferred on any potential investment growth. Contributions are generally made with after-tax money, but may be tax-deductible if you meet income eligibility.1
Who Can Invest in a Traditional IRA?
A traditional IRA is pretty straightforward. Anyone (or their spouse) over the age of 18 and under the age of 70 ½ who receives taxable income can invest in one.
If you’re single and working, then you can invest in a traditional IRA. If you’re a married breadwinner, you can invest in a traditional IRA. If you’re a stay-at-home spouse and your spouse is earning taxable income, then you can invest in a traditional IRA. You can do it if you’re married and both working. All as long as you’re under the age of 70 ½.
You can invest in a traditional IRA whether or not you have an employer-sponsored retirement account. There’s no minimum to how long you have to be at one company. There’s no need to even be at just one company. You can change jobs, start a business, work as a freelancer, or all of the above. As long as you’re under 70 ½ and earning taxable income, you can invest in a traditional IRA. It’s that simple.
The government gives you a break off taxes you would otherwise pay in order to encourage you to put money into a traditional IRA.
What Are the Benefits of a Traditional IRA?
Tax savings - Lower income taxes: If you're within the IRS income limits, deduct all or part of your contributions from your federal taxes.1
Access to your money - Big life events: Withdraw penalty-free for certain expenses, such as a first home purchase, birth, or college expenses.2
Easy to qualify - No income limits: As long as you're working, you can keep contributing to a traditional IRA, as well as your 401(k).1
Traditional IRA Contribution Limits
Visit the IRS website for the most up-to-date contribution limits.
Can I withdraw money from my IRA?
Age 59½ and under: Early IRA withdrawal penalties—with some exceptions
Generally, your deductible contributions and earnings (including dividends, interest, and capital gains) will be taxed as ordinary income. The U.S. government charges a 10% penalty on early withdrawals from a Traditional IRA, and a state tax penalty may also apply. You can learn more at IRS Publication 590-B
Age 59½ and over: No Traditional IRA withdrawal restrictions
Once you reach age 59½, you can withdraw funds from your Traditional IRA without restrictions or penalties. You can make a penalty-free IRA withdrawal at any time during this period, but if you had contributed pre-tax dollars to your Traditional IRA, remember that your deductible contributions and earnings (including dividends, interest, and capital gains) will be taxed as ordinary income.
In other words, you will now owe the taxes that you originally deferred. You can keep taking advantage of tax-deferred contributions regardless of your age as long as you have earned income. But you will be required to start taking required minimum distributions (RMDs) for the year you turn age 73.
Age 73 and over: Required minimum withdrawals are mandatory
Once you turn 73, you must start taking annual RMDs from your Traditional IRA. Your first RMD must be taken by April 1 of the year following the year you reach age 73. Every year thereafter you must take an RMD by December 31.
The amount of your RMD is calculated by dividing the value of your Traditional IRA by a life expectancy factor, as determined by the IRS. You can always withdraw more than the RMD, but remember that all distributions are taxed as income. If you don't make withdrawals, you'll be subject to pay a penalty.
Learn more about RMDs.
The Aspiration Redwood IRA
If you're interested in creating an IRA, consider investing in the Aspiration Redwood Fund.
The Aspiration Redwood Fund invests in industry leaders driving the transformation to greater sustainability and socially responsible companies with the aim of both producing strong returns while making our world a better place. With a minimum investment of only $10, the Aspiration Redwood Fund puts sustainable investing within the reach of everyone.
1. For a traditional IRA, full deductibility of a 2024 contribution is available to covered individuals whose 2024 Modified Adjusted Gross Income (MAGI) is $123,000 or less (joint) and $77,000 or less (single); partial deductibility for MAGI up to $143,000 (joint) and $87,000 (single). In addition, full deductibility of a contribution is available for non-covered individuals whose spouse is covered by an employer sponsored plan for joint filers with a MAGI of $230,000 or less in 2024; and partial deductibility for MAGI up to $240,000. If neither you nor your spouse (if any) is a participant in a workplace plan, then your traditional IRA contribution is always tax deductible, regardless of your income.
2. A distribution from a Traditional IRA is penalty-free provided certain conditions or circumstances are applicable: age 59 1/2; qualified first-time homebuyer (up to $10,000); birth or adoption expense (up to $5,000 per child); emergency expense (up to $1000 per calendar year); qualified higher education expenses; death, terminal illness or disablility; health insurance premiums (if you are unemployed); some unreimbursed medical expenses; domestic abuse (up to $10,000); substantially equal period payments; Qualfied Federally Declared Disaster Distributions or tax levy.