How are traditional IRA contributions treated for tax purposes?

Traditional IRA contributions are generally tax-deductible for the individual making the contribution, which means that the amount contributed can be deducted from taxable income for the year in which the contribution is made. This tax deduction allows individuals to lower their immediate tax liability.

When it comes to distributions from a traditional IRA, those funds are taxed as ordinary income at the individual's current income tax rate at the time of withdrawal. This deferral of taxes on contributions and the growth of investments within the IRA continues until withdrawals are made, typically during retirement when the individual may be in a lower tax bracket. Therefore, contributions to a traditional IRA provide immediate tax benefits, and the subsequent taxation upon withdrawal aligns with how the account is structured to incentivize retirement savings.

In summary, the hallmark of a traditional IRA is its ability to offer tax-deductible contributions while also deferring taxes until funds are withdrawn, which is reflected in the correct answer.