What is a Traditional IRA and What are its Benefits?
Traditional IRAs offer a tax-advantaged approach to accumulating funds for
Contributions may be tax-deductible, depending on your adjusted
gross income (AGI) and whether you participate in a retirement plan
Your potential earnings from your investments can grow on a
tax-deferred basis. If your investments increase in value, you won't
pay taxes on those earnings until you withdraw them - typically at
retirement. Tax-deferred compounding can enhance the growth
potential of your money.
The chart below shows annual contribution limits.
For a Traditional
IRA, you may contribute up to the lesser of: the current year's
age-based limit or 100% of earned income. Please note that the
dollar limit of your contribution is reduced by any contributions
you make to a
for the same tax year.
Below Age 50
Age Over 50
Are Traditional IRA Contributions Deductible?
For 2007, if you are covered by a retirement plan at work, your deduction
for contributions to a Traditional IRA is reduced (phased out) if
your modified Adjusted Gross Income (AGI) is:
More than $83,000 but less than $103,000 for a married couple filing a
joint return or a qualifying widow/widower
More than $52,000 but less than $62,000 for a single individual or head of
Less than $10,000 for a married individual filing a separate return.
For 2007, if you are not covered by a retirement plan at work, your
deduction for contributions to a traditional IRA may be reduced
(phased out) if you either live with your spouse at any time during
2007 or file a joint return for 2007.
If you either live with your spouse or file a joint return, and your
spouse is covered by a retirement plan at work (but you are not),
your deduction is phased out if your AGI is more than $156,000 but
less than $166,000.
If your AGI is $166,000 or more, you cannot take a deduction for
contributions to a traditional IRA.
Source: Internal Revenue Service (IRS)
Early Withdrawal Exceptions
In most cases, a withdrawal from a traditional IRA before age 59 is subject
to a 10 percent IRS penalty in addition to ordinary income taxes.
However, there are exceptions. These include:
To pay for the purchase of a first-time home ($10,000 lifetime cap)
To cover expenses for higher education Medical expense payments
Health insurance expenses (if account owner is unemployed) Permanent
disability of account owner Death of account owner