Can I Open a Traditional IRA? Eligibility Requirements

A Traditional Individual Retirement Arrangement, or IRA, is a personal savings plan that provides tax advantages to encourage retirement savings. When you contribute, those contributions may be tax-deductible, which could lower your taxable income for the year. The investments within the account grow tax-deferred, meaning you do not pay taxes on the earnings each year.

Taxes are paid only when you withdraw the money, which is done in retirement. An IRA is not an investment itself, but a vehicle held at a financial institution, like a brokerage firm or bank, that contains investments such as stocks, bonds, and mutual funds.

Eligibility Requirements for a Traditional IRA

The primary requirement for opening and contributing to a Traditional IRA is having earned income. Earned income is defined as taxable compensation from work, which includes wages, salaries, tips, commissions, bonuses, and net earnings from self-employment. Income from investments, pensions, or unemployment benefits does not qualify for IRA contributions.

Your total contribution cannot be more than your earned income for the year. As a result of the SECURE Act, there is no upper age limit for making contributions as long as you have earned income. Provisions also exist for individuals who do not have earned income but are married to someone who does. A spousal IRA allows a working spouse to make contributions on behalf of a non-working or low-earning spouse, provided they file a joint tax return. The total combined contributions for both spouses cannot exceed the couple’s joint taxable compensation.

Contribution and Deduction Rules

For the 2025 tax year, the maximum amount you can contribute to all of your IRAs—Traditional and Roth combined—is $7,000 if you are under age 50. If you are age 50 or older, you can make an additional “catch-up” contribution of $1,000, bringing your total limit to $8,000 per year. You have until the federal income tax filing deadline, April 15th of the following year, to make contributions for the current tax year.

The ability to deduct your Traditional IRA contributions depends on your Modified Adjusted Gross Income (MAGI) and whether you or your spouse are covered by a retirement plan at work. MAGI is calculated by taking your Adjusted Gross Income (AGI) from your tax return and adding back certain deductions.

If You Are Not Covered by a Workplace Retirement Plan

If you are not an active participant in any employer-sponsored retirement plan, you can take a full deduction for your Traditional IRA contributions, up to the maximum annual limit, regardless of your income level.

If You Are Covered by a Workplace Retirement Plan

If you are covered by a retirement plan at work, your ability to deduct contributions becomes more complex and is based on your income. For the 2025 tax year, a single filer’s deduction is phased out with a MAGI between $79,000 and $89,000. If your MAGI is below this range you can take a full deduction, and if it is above, you cannot deduct your contribution. For those married and filing jointly, the phase-out range is a MAGI between $126,000 and $146,000.

If You Are Not Covered, but Your Spouse Is

If you are not covered by a workplace retirement plan but your spouse is, a different set of income limits apply. For the 2025 tax year, your deduction is phased out if your joint MAGI is between $236,000 and $246,000. If your income is above this range, no deduction is allowed. For married individuals filing separately who lived with their spouse at any time during the year, the phase-out range is between $0 and $10,000.

Choosing a Provider

You must choose a financial institution to act as the custodian for your IRA. Options include brokerage firms, banks, and mutual fund companies. When selecting a provider, consider factors such as account fees, the range of available investment options like stocks, bonds, and ETFs, and the quality of customer support.

Information Needed to Open an Account

Before you begin the application, gathering the necessary information will ensure a smooth process. You will need to provide specific personal and financial details to verify your identity and set up the account.

• Personal Identification: Your full legal name, date of birth, a valid physical address (not a P.O. Box), and your Social Security number or Taxpayer Identification Number.
• Beneficiary Information: The full name, date of birth, and Social Security number for each person or entity you designate to inherit the account upon your death.
• Funding Information: Your bank’s routing number and your account number to facilitate electronic funds transfers for your initial and subsequent contributions.

How to Open and Fund Your Account

The first action is to submit the completed application. Most financial institutions offer a streamlined online application process that takes only a few minutes to complete and electronically sign. For those who prefer a physical application, the provider will give instructions for mailing the completed and signed forms.

With the application submitted, the next step is to make your initial contribution. The most common method is an electronic funds transfer (EFT) from the bank account you linked during the application. Another option is to fund the account via a rollover from a former employer’s 401(k) plan, a process the new IRA provider can help facilitate. While the IRS sets no minimum, some financial institutions may require an initial deposit.

After submitting the application and initiating funding, you will receive a confirmation email acknowledging receipt. Once approved, you will get your new IRA account number and can create login credentials for the online portal. The funds you transferred may take a few business days to appear in the new account, after which you can begin selecting investments and managing your portfolio.