In 1997,
Congress passed the
Taxpayer Relief Act of 1997 which, among other things,
created several classes of
individual retirement account or
IRA. The term "
traditional" refers to the sole type of IRA that existed before passage of this
bill (and which still exists today). The
Traditional IRA is
distinguished primarily by the ability (assuming you meet certain income requirements) to
deduct the amount of your
annual contributions from your income for
federal tax purposes. You may make
nondeductible contributions to a
Traditional IRA if you do not meet the
deductibility criteria, but you must then file
IRS Form 8606 with your
federal income tax.
Owners of Traditional IRAs are also required to begin taking withdrawals from these accounts after they reach age 70 1/2. In addition to their other advantages, Roth IRAs never compel you to withdraw assets.
If I had to wager, I'd say that the Traditional IRA is a dying breed, especially as it is possible to move money from a Traditional IRA into a Roth (if you're willing to pay income taxes on the amount of the transfer). Still, I guess it's good to have a choice.