Types of Retirement Plans - Other Tax-Advantaged Retirement Plans

Types and basic provisions

A. Traditional IRA
A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA.

  • Individual Retirement Account - A trust or custodial account set up in the United States for the exclusive benefit of an individual or his or her beneficiaries.
  • Individual Retirement Annuity - An annuity contract or endowment contract purchased from a life insurance company. Must be issued in the name of owner with either the owner or beneficiaries who survive owner the only ones who can receive the benefits or payments.
  1. Eligibility - Anyone who received taxable compensation during a tax year and was not age 70½ by the end of that year.
  2. Annual contributions limits - The smaller of the following amounts:
    • Individual Retirement Account - A trust or custodial account set up in the United States for the exclusive benefit of an individual or his or her beneficiaries.
    • Individual Retirement Annuity - An annuity contract or endowment contract purchased from a life insurance company. Must be issued in the name of owner with either the owner or beneficiaries who survive owner the only ones who can receive the benefits or payments.
  3. Spousal IRA limit - An individual who files a joint return and has taxable compensation is less than his or her spouse is limited to the following amounts:
    • $5,500 ($6,500 if age 50 or older) or
    • Taxable compensation for the year.
    • These limits apply to total contributions made to all IRAs benefiting the same individual
  4. Contributions deadline - Contributions for a given year may be made any time during that year or by the due date for filing a return for that year, usually April 15 of the following year.
    • $5,500 ($6,500 if 50 or older).
    • Total compensation includable in gross income for both spouses reduced by the following:
      • Spouse's IRA contribution for the year to a traditional IRA.
      • Any contributions on spouse's behalf to Roth IRA.
    • Deduction limits
      • Age 70½ rule - Contributions cannot be made to a traditional IRA for the year in which an individual reaches age 70½ or for any later year.
    • Spousal IRA - For a married couple with unequal compensation who file jointly, the deduction for contributions on behalf of lower-paid spouse is limited to the lesser of:
      • Full deduction - If neither an individual nor spouse was covered for any part of a year by an employer retirement plan, the individual may take a deduction for total contributions to one or more traditional IRA plans up to:
        • $5,500 ($6,500 if 50 or older), or
        • 100% of individual's compensation.
    • Deduction phaseout - Deduction of traditional IRA contributions for individuals covered by an employer retirement plan are limited, or phased out, depending on filing status and modified adjusted gross income (modified AGI).
      • $5,500 ($6,500 if spouse with lower compensation is 50 or older) or
      • Total compensation includable in gross income of both spouses reduced by:
        • IRA deduction for spouse with greater compensation.
        • Any designated nondeductible contribution made on behalf of spouse with greater compensation.
        • Any contributions to a Roth IRA on behalf of spouse with greater compensation.
      • Deduction phaseout for individual not covered by employer retirement plan but whose spouse is covered by such a plan.
        • Phaseout ranges (For 2013, adjusted annually):
          • Single or head of household: Modified AGI $59,000-$69,000.
          • Married filing jointly or qualifying widow(er): Modified AGI $95,000-$115,000.
          • Married filing separately: $0-$10,000.
      • Nondeductible contributions - Although the deductions for IRA contributions may be reduced or eliminated, contributions still can be made up to general limits.
Roth IRA
Related Articles
  1. Investing Basics

    Explaining Risk-Adjusted Return

    Risk-adjusted return is a measurement of risk for an investment or portfolio.
  2. Investing Basics

    Calculating the Margin of Safety

    Buying below the margin of safety minimizes the risk to the investor.
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Enhanced Short Dur

    Find out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI KLD 400 Social

    Find out about the iShares MSCI KLD 400 Social exchange-traded fund, and learn detailed information about its characteristics, suitability and recommendations.
  7. Mutual Funds & ETFs

    ETF Analysis: Guggenheim BulletShrs 2018 HY CorpBd

    Find out about the Guggenheim BulletShares 2018 High Yield Corporate Bond ETF, and get information about this ETF that focuses on high-yield corporate bonds.
  8. Mutual Funds & ETFs

    ETF Analysis: PowerShares DWA SmallCap Momentum

    Find out about the PowerShares DWA SmallCap Momentum Portfolio ETF, and explore detailed analysis the fund's characteristics, suitability and recommendations.
  9. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
RELATED TERMS
  1. Net Line

    The amount of risk that an insurance company retains after subtracting ...
  2. Political Risk Insurance

    Coverage that provides financial protection to investors, financial ...
  3. Maximum Drawdown (MDD)

    The maximum loss from a peak to a trough of a portfolio, before ...
  4. Gross Exposure

    The absolute level of a fund's investments.
  5. Priori Loss Estimates

    A technique used by insurance companies to calculate loss reserves.
  6. Value Of Risk (VOR)

    The financial benefit that a risk-taking activity will bring ...
RELATED FAQS
  1. Is my IRA/Roth IRA FDIC-Insured?

    The Federal Deposit Insurance Corporation, or FDIC, is a government-run agency that provides protection against losses if ... Read Full Answer >>
  2. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  3. What are common delta hedging strategies?

    The term delta refers to the change in price of an underlying stock or exchange-traded fund (ETF) as compared to the corresponding ... Read Full Answer >>
  4. How does being overweight in a particular sector increase risk to a portfolio?

    An investor who is overweight in a particular sector risks a loss in value for the portfolio if there is a downturn in that ... Read Full Answer >>
  5. What are the primary risks an investor should consider when investing in the retail ...

    The retail sector consists of companies operating in multiple industries such as specialty retail, general retail, food and ... Read Full Answer >>
  6. What risks do I face when investing in the insurance sector?

    Like all equity investments, insurance companies present investors with market risk. Insurance companies, like banks, also ... Read Full Answer >>
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!