Self-Directed Traditional IRA
Enjoy tax advantages while saving for retirement on your terms
A Traditional IRA is a popular savings vehicle due to its tax advantages and the flexibility it offers for diverse investment options. Discover the qualifications for a Traditional IRA, how a self-directed Traditional IRA works, and how to set up an account.
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Self-Directed IRAs
What is a Traditional IRA?
A Traditional IRA (Individual Retirement Account) is a type of retirement savings account that allows those who qualify to contribute pre-tax income toward investments that can grow tax-deferred until withdrawal. This means that contributions to a Traditional IRA may lower your taxable income for the year the contributions are made, potentially reducing your overall tax liability. Taxes are then paid on the money when it is withdrawn from the account during retirement.
Traditional IRAs are a popular choice for retirement savings due to their tax advantages, providing a straightforward way for individuals to save and invest for their retirement years. At Equity Trust Company, you can self-direct your Traditional IRA to invest in a broad range of asset types, including real estate, private equity, cryptocurrency, precious metals, and much more.
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Benefits of a Traditional IRA
Secure retirement: Traditional IRAs are designed to be long-term retirement savings vehicles, with the potential to significantly impact your financial security in retirement. The earlier you start contributing, the more potential your savings have to grow due to compounding interest.
Tax savings: Traditional IRAs enable you to grow your retirement account over time tax-deferred, while also possibly qualifying for yearly tax deductions. Plus, any profits you make from investments in an IRA are not subject to capital gains taxes. While the money is taxed when withdrawn, often owners are in a lower tax bracket at that point in their life.
Fewer income restrictions: Unlike a Roth IRA, there is no income limitation to contribute to a Traditional IRA. The only requirement to contribute is that you have earned income.
Investment flexibility: There are nearly endless investment options for Traditional IRAs. This means you can expand your portfolio into alternative investments, into assets you know and understand while diversifying your risk.
Contribution Limits for a Traditional IRA
The IRS sets limits for how much you can contribute to a Traditional IRA each year. See the current year’s contribution limits.
If you’re 50 or older, you can take advantage of “catch-up contributions,” which mean you can contribute an extra $1,000.
Traditional IRA Contribution Limits and Deadline
| 2026 | 2025 | |
| Standard Contribution Limit | $7,500 | $7,000 |
| Catch-Up Contribution Limit (Age 50 and Older) | $8,600 | $8,000 |
| Contribution Deadline | 4/15/2027 | 4/15/2026 |
| 2026 | |
| Standard Contribution Limit | $7,500 |
| Catch-Up Contribution Limit (Age 50 and Older) | $8,600 |
| Contribution Deadline | 4/15/2027 |
Traditional IRA Eligibility Requirements
Anyone who has compensation is eligible to make a contribution to a Traditional IRA.
Which compensation qualifies? Compensation is defined as the wages, salaries, commissions, bonus, alimony and any other amount that you receive for providing personal services. For individuals who are self-employed, sole proprietors and partners in a partnership, “earned income” is another term for compensation.
Which compensation doesn’t qualify? Passive income such as interest, dividends and most rental income are not considered compensation for the purpose of funding an IRA.
Traditional IRA Rules
Contribution limits: As mentioned above, the IRS sets annual limits to how much you can contribute to a Traditional IRA. These limits can change from year to year based on inflation adjustments.
Related: What happens if you over-contribute to your IRA?
Limitations for tax deductions on contributions: Traditional IRA contributions may qualify for tax deductions if you meet eligibility requirements. Qualification depends on a variety of factors, including whether you’re covered by a retirement plan at work and your income.
Required minimum distributions: Starting at age 73, you must take required minimum distributions (RMDs) from your IRA each year, to ensure that the savings are eventually drawn down.
Early withdrawal penalties: Withdrawals can be made from a Traditional IRA without penalties starting at age 59½. Withdrawing funds from the account before age 59½ generally results in a 10-percent penalty on the amount withdrawn, in addition to the normal income tax due, although there are exceptions for specific circumstances like buying a first home or paying for qualified education expenses. Learn more about withdrawal rules.
Traditional IRA and Taxes
Contributions to a Traditional IRA are made with pre-tax income, and taxes are deferred until the funds are withdrawn. Likewise, any investment earnings (such as interest, dividends, or capital gains) are not taxed until they are withdrawn, usually during retirement, when the account holder may be in a lower tax bracket.
Here’s a summary of the difference between Traditional IRAs and Roth IRAs, including tax treatment:
| Traditional IRA | Roth IRA | |
| Tax Advantages | Account balances compound tax-deferred until funds are withdrawn | Account balances compound tax-deferred. BUT funds that are withdrawn are tax-free if account is five years old and account owner is over 59 1/2 |
| Eligibility | Individuals must have earned income* | Individuals must have earned income* and modified adjusted gross income less than current limits (see www.irs.gov for details) |
| Tax Deductions on Contributions | Yes | No |
| Penalties for Early Withdrawal | 10% penalty for withdrawals before age 59 1/2 | 10% penalty for withdrawals before age 59 1/2 and five year seasoning period (Note: Roth contributions can be taken out at any time without penalty) |
| Exceptions for 10% Penalty | Yes | Yes |
| Cut-off Age for Contributions | No limit | No limit |
| Required Distributions | Yes. You must take your first required minimum distribution by April 1 of the year after you turn 72 (70 1/2 if you reached 70 1/2 by January 1, 2020) | None |
| Traditional IRA | |
| Tax Advantages | Account balances compound tax-deferred until funds are withdrawn |
| Eligibility | Individuals must have earned income* |
| Tax Deductions on Contributions | Yes |
| Penalties for Early Withdrawal | 10% penalty for withdrawals before age 59 1/2 |
| Exceptions for 10% Penalty | Yes |
| Cut-off Age for Contributions | No limit |
| Required Distributions | Yes. You must take your first required minimum distribution by April 1 of the year after you turn 72 (70 1/2 if you reached 70 1/2 by January 1, 2020) |
* Earned income is defined as the salary or wages you receive as an employee. If you’re self-employed, earned income is your net income for personal services performed. Passive income such as interest, dividends, and most rental income are not considered compensation for the purpose of funding an IRA. Consult a financial professional to determine your earned income.
Getting Started with a Traditional IRA
Here are the three steps to getting started with an Equity Trust self-directed Traditional IRA:
Open your Equity Trust Traditional IRA
One of our specialized IRA Counselors will walk you through the process, or you can do it online through our account management system myEQUITY.
Fund your new tax-advantaged account
You can fund your account via rollover, transfer, or out-of-pocket contribution.
Select your investment and direct Equity Trust to fund it
myEQUITY investment wizards walk you through submitting your investment online. Our liaisons are ready to assist if you need it.
Traditional IRA FAQs
How do you contribute to a Traditional IRA?
Is a Traditional IRA the same as a 401(k)?
What is the difference between Roth IRA and Traditional IRA?
Can you have a Traditional IRA and a Roth IRA?
Is a rollover IRA a Traditional IRA?
Is a SIMPLE IRA the same as a Traditional IRA?
How do you convert a Traditional IRA to Roth IRA?
Can high income earners contribute to a Traditional IRA?
Self-Directed Traditional IRA FAQs
What is a self-directed Traditional IRA?
Can you convert a Traditional IRA to a self-directed IRA?
Who offers self-directed Traditional IRAs?
Interested in alternative investments but don’t know where to start?
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Available through our online account management system, myEQUITY, the WealthBridge portal provides a secure, direct connection to alternative asset investment platforms.
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