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Saving for Retirement >

• The Basics
• Understanding IRAs
  • Six Reasons to Consider an IRA
  • Consolidate Retirement Savings
  • Investing in an IRA: What You Need to Know
  • Traditional IRAs
  • Roth IRAs
  • SEP IRAs
  • Traditional vs. Roth
• Investment Ideas
• Family Matters
• Tax Considerations

TRADITIONAL IRAs

A Traditional IRA is a tax-deferred individual retirement account from which eligible investors can obtain a tax deduction on their contributions. You can be eligible for the deduction if:

• Neither you nor your employer are contributing to an employer-sponsored retirement plan on your behalf. If you're not covered by an employer's retirement plan, you can deduct the full amount of your contribution from your federal taxes.
• You're covered by an employer-sponsored retirement plan but meet the necessary income requirements. In this case, you're eligible either for a full deduction or a partial deduction.

Contribution Limits/Rules

The Traditional IRA contribution limit from your earned income for the 2008 tax year is up to $5,000 (or up to $6,000 if you're age 50 or older).

You must be under age 70½ to be eligible to contribute to a Traditional IRA.

For the 2008 tax year, the rules pertaining to Traditional IRA tax deductions are:

Full Deduction

• You're not covered by an employer-sponsored retirement plan.
• You're a single filer and your adjusted gross income (AGI) is $53,000 or less
• You're a joint filer and your AGI is $85,000 or less

Partial Deduction

• You're a single filer and your AGI is between $53,000 and $63,000
• You're a joint filer and your AGI is between $85,000 and $105,000

No Deduction

If you're covered by an employer-sponsored retirement plan and your AGI is above these limits, you can still contribute to a Traditional IRA, but you cannot deduct your contributions.

Withdrawal Rules

Withdrawals from a Traditional IRA after age 59½ are taxed at your ordinary income tax rate. However, if you withdraw money from a Traditional IRA before age 59½, you may pay a 10 percent early withdrawal penalty, as well as ordinary income tax.

The IRS may waive this penalty when distributions are used for:

• Certain unreimbursed medical expenses
• Medical insurance, providing certain conditions are met
• A disability, if certain conditions are met
• Payments to designated beneficiaries in the event of the death of the IRA owner
• Payments received under a Substantially Equal Payment Plan over a five-year period or until age 59½ (whichever is longer)
• Qualified higher education expenses
• The purchase of a first home

Traditional IRA owners must begin taking minimum distributions beginning on April 1 following the year they turn age 70½, or else they face a 50 percent IRS penalty tax on the amount they should have withdrawn.

A Traditional IRA may be appropriate if:

• You meet the contribution limits listed above and can thus make tax-deductible contributions.
• Your earnings are too high to make you eligible for a Roth IRA. (In such a case, you can open a Traditional IRA, although your contributions won't be tax deductible.)
• You believe you may be in the same or a lower tax bracket in retirement.
• You may need to draw from retirement savings for education costs or a first home.

Neither TIAA-CREF nor its affiliates offer tax advice. See your tax advisor regarding your personal situation.

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