A traditional IRA (Individual Retirement Account) is a tax-deferred retirement savings account. Contributions to a traditional IRA are tax-deductible, which means that you can reduce your taxable income by the amount you contribute, and the earnings on the account are tax-deferred until you withdraw them in retirement.
As a freelancer, a traditional IRA can be a good retirement savings option if you want to reduce your taxable income now and expect your tax rate to be lower in retirement than it is now. By contributing to a traditional IRA, you can reduce your taxable income, potentially saving you money on taxes now, and the tax-deferred earnings can grow over time.
Additionally, like other retirement savings accounts, traditional IRAs can provide a disciplined approach to saving for retirement, as the contributions are deducted automatically from your income.
However, the contribution limits for a traditional IRA are lower than those for a Solo 401(k) or a SEP IRA, so it may not be the best option for freelancers who want to save a significant amount towards retirement. Additionally, once you reach age 72, you are required to take minimum distributions from your traditional IRA, which may be a disadvantage for freelancers who want to leave the money in the account to continue growing tax-deferred.
A traditional IRA can be a good retirement savings option for freelancers who want to reduce their taxable income now and expect their tax rate to be lower in retirement than it is now. However, it’s important to consider all available options and consult with a financial advisor to determine the best retirement savings plan for your individual circumstances.