How a Traditional IRA Grows

Contributions grow tax-deferred, so you pay ordinary income tax only on withdrawals. A $7,000/year contribution at 22% saves about $1,540 in taxes now. From age 30 to 65, a $5,000 balance plus $7,000/year at 7% grows to roughly $1.02M — about $796K after a 22% tax, funding ~$31,900/year under the 4% rule.

The Tax Arbitrage

The Traditional IRA's entire value proposition is rate arbitrage: deduct contributions at today's rate, withdraw at retirement's rate. If you retire in a lower bracket (as most people do, with less income), every dollar of difference is pure savings. The deduction also frees cash today — $1,540/year on a maxed contribution — that can itself be invested.

Watch the RMDs

Unlike a Roth, a Traditional IRA forces withdrawals starting at age 73, whether you need the money or not. High balances can push you into higher tax brackets late in life. Converting to a Roth in low-income years — paying tax now at a low rate — is a common strategy to dodge RMDs entirely.