border
border


Traditional IRA

What is a Traditional IRA and What are its Benefits?

Retirement Planning and retirement plans

Traditional IRAs offer a tax-advantaged approach to accumulating funds for retirement.
Benefits include:

Contributions may be tax-deductible, depending on your adjusted gross income (AGI) and whether you participate in a retirement plan at work.

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 Roth IRA for the same tax year.
Year Below Age 50 Age Over 50
2005 $4,000 $4,500
2006 $4,000 $5,000
2007 $4,000 $5,000
2008 $5,000 $6,000

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 household
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



 








image


image
image

disclaimer