The Features And Benefits Of A Traditional IRA
A traditional IRA is an individual retirement account held at a bank or a brokerage and the funds may be invested as desired by the custodian which could be anything from mutual funds to certificates of deposit. The main feature of a traditional IRA is that the contributions made are tax deductible subject to certain criteria. The earnings are tax deferred during accumulation and the tax is incurred only when withdrawn. This is a great benefit as you can accumulate your earnings without incurring tax so you tend to save more for retirement provided you decide to withdraw only when your tax bracket is low.
You can set up a traditional IRA if you receive taxable income during the year. You may contribute even if you have any other employee sponsored retirement plan or a Roth IRA. But in case of contributing to a Roth IRA there is specified limit as to how much you can contribute to both the IRA's combined. Another eligibility required is that you should be below 70 and half years of age by the end of the year. In case both you and your spouse fulfill the above criteria each of you can set up a separate IRA, since you cannot participate in the same IRA.
The maximum IRA contribution if you are below 50 years of age is $5,000 annually for the year 2008. If you are above 50 years of age then the maximum IRA contribution would be 6,000$ annually for 2008. The main reason for someone to invest in a retirement plan is generally for tax deductions. Hence it is good to have an idea of how much one can deduct while investing in a traditional IRA.
The amount that can be deducted usually depends on certain factors like income, marital status or whether you are an active participant in any other retirement plan. In case neither spouse is involved in a retirement plan then your traditional IRA contribution is deductible irrespective of your income. But if either spouse is an active participant of some other retirement plan then contributions may be deducted only if income is below specified limits. If you decide to withdraw money before age 59 1/2 from your traditional IRA you would need to pay a 10% penalty on withdrawals except for certain specific exceptions. At age 701/2 you will begin to receive required minimum distributions, calculated using an IRS formula from your traditional IRA. To sum up, traditional IRA is a beneficial option that helps you to save tax while contributing. The earnings grow tax free until withdrawal or retirement. Only on withdrawal you will have to pay tax and if you plan to withdraw when your tax bracket is low then you are definitely saving a lot of money.
IRA Contributions Privacy Policy And Terms Of Use
|