If you’re saving money for retirement in a Traditional IRA, you probably already know that doing so offers some tax benefits. Aside from being able to deduct what you save, you likely know about the annual contribution limit and how these accounts differ from Roth IRAs. But those facts are just the tip of the iceberg.

Taking a deeper dive into your Traditional IRA can help you avoid any surprises as you build your retirement strategy. Here are seven things to know about these tax-advantaged accounts.

A piece of paper with traditional IRA circled in red.

1. You Can Invest in More Than Just Stocks and Bonds

Stocks, mutual funds and bonds are popular choices for Traditional IRA investments but they’re not the only things you can invest in. With a self-directed IRA, you can also invest in alternatives like real estate, gold, private placements and limited partnerships. A trustee holds your investments, but you decide what to invest in.

A self-directed IRA could be a good choice if you’re comfortable making your own investment decisions. There are some rules you need to follow, however. The IRS prohibits any self-dealing in a self-directed IRA, which essentially means that you can’t make any investments that benefit you directly.  If you violate the self-dealing rules, the IRS can take away your IRA’s tax-advantaged status.

2. Married Couples Can Double Their Tax Benefits

Generally, you must have earned income for the year to contribute to an IRA. If you’re married but your spouse doesn’t work, that doesn’t disqualify him or her from having a Traditional or Roth IRA. The IRS allows nonworking spouses to set up a spousal IRA, which has the same annual contribution limit as a Traditional IRA. If you both max out your Traditional IRAs each year, you may be able to double the value of your tax deduction.

3. Withdrawing Money Early May Cost You

Unlike a 401(k), a Traditional IRA doesn’t allow you to take out a loan. At age 59½, however, you can begin taking withdrawals from your account without a tax penalty. You’d still owe regular income tax, of course. If you take money out of your IRA before age 59½, you could get stuck with a 10 percent early withdrawal penalty in addition to the income taxes you will owe.

The IRS allows some exceptions to this rule, but they’re fairly narrow. For instance, you can avoid the penalty if you’re using the money to pay for qualified education expenses or buy a first home. Penalty-free withdrawals are also allowed if you’re using the funds to pay for health insurance premiums while you’re unemployed or unreimbursed medical expenses that exceed 7.5 percent of your adjusted gross income.

4. But You Have to Withdraw Money Eventually

If you have a Roth IRA, you can save indefinitely as long as you have earned income for the year. A Traditional IRA, however, has different rules.

With a Traditional IRA, you must begin taking required minimum distributions once you reach age 70½. The amount of the distribution is based on your account value and life expectancy. If you fail to take RMDs, the IRS can penalize you in a big way. You’ll face a tax penalty equivalent to 50 percent of the amount you were required to withdraw, so it’s important to know when you’ll have to begin taking distributions.

5. You Can Convert to a Roth IRA

Roth IRAs offer the advantage of being able to withdraw money tax-free in retirement. If you expect to be a in a higher tax bracket when you retire, having a Traditional IRA could mean a bigger tax bill. Fortunately, the IRS allows you to convert Traditional IRA assets to a Roth account.

The tradeoff is that you must pay taxes on anything you convert from a Traditional IRA, since these accounts are funded with pre-tax dollars. That means you may have to pay more in taxes for the year you complete the conversion to have the benefit of tax-free distributions later.

6. You’ll Need to Name a Beneficiary

While a will is an important tool for estate planning, there are certain assets that require you to name a specific beneficiary (or beneficiaries) and a Traditional IRA is one of them. Your beneficiary can be an individual, such as a spouse, child or grandchild, or a trust. Remember that if you name your spouse as your beneficiary and you divorce, you’ll need to update your beneficiary information if you don’t want your ex to inherit your IRA.

7. You Can Still Save in an IRA If You Have a 401(k)

Having access to a retirement plan through your job is a great perk and it doesn’t disqualify you from saving in a Traditional IRA as well. It can, however, affect how much of your annual contribution to your IRA is tax deductible. The IRS may limit what you can deduct, based on how much you earned for the year and your filing status. Even if you can’t deduct your contributions, however, it’s still worth it to save in your IRA and your 401(k) to maximize your nest egg’s growth through tax-free savings (unlike income in a regular investment account, you won’t be taxed on your earnings until you withdraw them in retirement).

Traditional IRAs aren’t overly complicated, but the more you know about how yours works, the better. Getting the basics down can go a long way towards ensuring that you’re squeezing the most value out of your IRA.

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