Traditional IRAs

Boats in the riverA Traditional IRA is a tax-deferred individual retirement account, or an individual retirement annuity, from which eligible investors may be able to obtain a tax deduction on their contributions.

You are eligible for the tax 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, regardless of the amount of your income.

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 2014 tax year is a maximum of $5,500 (or up to $6,500 if you’re age 50 or older). 

You must be under age 70½ and have taxable compensation to be eligible to contribute to a Traditional IRA.

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% 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 that are part of a series of substantially equal periodic payments made, at least annually, for the life or life expectancy of the individual (or the joint lives or joint life expectancy of the individual and his/her designated beneficiary)
  • Qualified higher education expenses
  • The purchase of a first home
  • Qualified hurricane distributions
  • Qualified reservist distributions

Traditional IRA owners must begin taking minimum distributions no later than April 1 following the year they turn age 70½, or else they face a 50% IRS penalty tax on the amount they should have withdrawn.

Neither TIAA-CREF nor its affiliates offer tax advice. The tax information contained herein is not intended to be used, and cannot be used, by any taxpayer for the purpose of avoiding tax penalties. Taxpayers should seek advice from an independent tax advisor based on their own particular circumstances.

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