You may think saving for retirement only benefits you in the long run. However, a traditional IRA (individual retirement account) is a savings tool that offers tax benefits now while you save for retirement later. For the most part, all you need is taxable income and you can open an IRA at a brokerage firm or at a bank.

Putting off saving for retirement is common. In fact, most people don’t get serious about it until they get closer to retirement age. If that sounds like you, it may be time to reconsider your strategy. Traditional IRAs are some of the best retirement savings options out there. Here are a few reasons why a traditional IRA may be a good fit for you.

You want to reduce your tax burden right away.

Contributions to a traditional IRA are tax-deductible in the year you make them.

That means that you can deduct the amount you deposit into your IRA from your taxable income, so you pay less income tax for the year.

Keep in mind that those tax deductions are subject to government-set income limits. In addition, any growth on this type of IRA is tax-deferred until you withdraw funds. Then, during retirement, those distributions are taxed according to your tax rate at that time.

Paying less in taxes now lets you save more.

An added bonus of reducing the amount you have to pay in taxes now is that it may allow you to contribute more to your IRA (within federal limits) for retirement later. Just remember you do have to pay taxes when you pull the money out.

To see what this would look like, spend some time plugging your own numbers into an IRA calculator. This should help you get a feel for how different scenarios might play out for your individual situation.

You expect to be in a lower tax bracket when you retire.

Granted, you can’t tell what the future holds, so estimating your tax bracket at retirement takes some guesswork. All the same, if you think you’ll be in a lower tax bracket when you retire, you might be better off with a traditional IRA.

That’s because if you deduct your contributions now, your current tax bill ends up being lower. When you start taking distributions in retirement at a lower tax rate, you’ll pay less in taxes then, too.

You’re not covered by a retirement plan at work.

If your employer doesn’t offer a retirement plan, a traditional IRA may be a good way for you to sock away pre-tax dollars. Keep in mind that depending on your marital status and whether your spouse is covered by a retirement plan at work, you may be subject to income-based deduction limits.

You’re not eligible for a Roth IRA anyway.

Another reason you may want to check out traditional IRAs: you make too much money to open a Roth IRA. You can’t contribute to a Roth IRA if your income exceeds government-set limits, so check the IRS website to see if your income allows you to be eligible for a Roth IRA. If not, a traditional IRA may be the way to go.

If you are eligible for both, compare the features of both types of IRAs to see which best fits your goals. It’s good idea to visit the Internal Revenue Service website for specific, up-to-date information.

If you aren’t sure a traditional IRA is right for you, there are a few other types of IRAs available, all with their own rules and tax benefits.

Ally Bank offers deposit IRA products along with the safety and security of FDIC insurance, up to the up to the maximum allowed by law.

Ally Invest offers invest IRA products tailored to customers who prefer to manage their own trading as well as those who prefer a hands-off option.  Just remember, investing involves risk, including loss of principal. Ally Invest products are not FDIC-insured, not bank guaranteed, and may lose value.

Last Edited: June 18, 2018