In what form must contributions to a traditional IRA be made?

Contributions to a traditional IRA must be made in cash or cash equivalents. This requirement ensures that the funds are liquid and can be readily deposited into the account, allowing for immediate investment within the IRA. Cash equivalents include money market accounts or other similar instruments that are easily convertible to cash.

The guideline is in place so that the contributions can be easily managed and invested according to the account holder's preferences and investment strategy. Cash contributions enable investors to purchase a wide variety of investment assets, such as stocks, bonds, or mutual funds, once the money is within the IRA. This provides flexibility and encourages individuals to invest in ways that best meet their financial goals.

Investments made in forms such as stocks, bonds, or real estate cannot be directly contributed as they lack the liquidity required for the initial deposit into an IRA. Therefore, ensuring that contributions are made in cash or cash equivalents aligns with the regulations governing IRAs and facilitates smooth administration of the account.