| Key Benefits of
Traditional IRAs |
- Tax-deferred growth
- Tax-deductibility for those who qualify
- Penalty-free withdrawals for specific purposes
- Eligibility until age 70½
- Suitable for rollovers of qualified retirement
- assets and IRAs held elsewhere
|
|
Traditional IRAs
The Traditional IRA offers tax-deferred growth on contributions and earnings. For many
investors, contributions are also tax-deductible. However, the benefits of tax-deferred growth are so powerful
that investors who are not eligible for the tax deduction may still want to make nondeductible contributions.
Typically, you take distributions from a Traditional IRA in retirement, when your tax rate may be lower than it
is today.
Understand Your Eligibility For Tax Deductions
If you are under age 70½ and your earned income is below the Adjusted Gross Income (AGI)
limits set by federal law, you are eligible for tax-deductible contributions to a Traditional IRA in a given year,
even if you are an active participant in an employer-sponsored retirement plan. If neither you nor your spouse is
an active participant in an employer-sponsored plan, your contributions to a Traditional IRA are always tax-deductible
regardless of your income.
Making Withdrawals From a Traditional IRA After age 59½
Beginning at age 59½, you can take penalty-free withdrawals from your Traditional IRA. If
your contributions were tax-deductible, you pay ordinary income tax on both the contributions and earnings withdrawn.
If all of your contributions were nondeductible, you pay tax only on the earnings when withdrawn. Withdrawals are
prorated between contributions and earnings. Beginning at age 70½, you must begin withdrawing at least the annual
required minimum distribution from your Traditional IRA.
| Who Can Make Tax-Deductible Contributions
To A Traditional IRA In 2007? |
| Single with an AGI of: |
Tax-Deductibility |
| $52,000 or less |
Full $4,000 contribution† |
| $52,000-$62,000 |
Reduced contribution |
| $62,000 or more |
After-tax only |
| Married filing jointly with an AGI of: |
Tax-Deductibility |
| $83,000 or less |
Full $4,000 contribution† |
| $83,000-$103,000 |
Reduced contribution |
| $103,000 or more |
After-tax only |
| † $5,000 if you are age 50 or older. |
| Who Can Make Tax-Deductible
Contributions To A Traditional IRA In 2008? |
| Single with an AGI of: |
Tax-Deductibility |
| $53,000 or less |
Full $5,000 contribution† |
| $53,000-$63,000 |
Reduced contribution |
| $63,000 or more |
After-tax only |
| Married filing jointly with an AGI of: |
Tax-Deductibility |
| $85,000 or less |
Full $5,000 contribution† |
| $85,000-$105,000 |
Reduced contribution |
| $105,000 or more |
After-tax only |
| † $6,000 if you are age 50 or older. |
Before age 59½
If you take a withdrawal from your Traditional IRA before age 59½, you may have to
pay a 10% early withdrawal penalty, in addition to paying ordinary income tax, unless the withdrawal is for
an exception allowed by law.
What are the exceptions to the 10% Early Withdrawal Penalty?
- First-time home purchases (up to a lifetime maximum of $10,000)
- Death or disability
- Paying for qualified higher education expenses
- Distributions taken as substantially equal periodic payments over your life expectancy
- Payments to cover medical expenses greater than 7.5% of AGI
- Payments to cover certain health insurance premiums for those receiving unemployment
compensation for 12 or more consecutive weeks
Open a Traditional
IRA Account Now
Related Links:
Traditional
IRA or Roth IRA - Which IRA is right for you?
Traditional vs. Roth Comparison Chart
Roth IRAs
|
