Series 6

Retirement and College Savings Plans - Traditional IRAs

Individual Retirement Accounts (IRAs)
In the early 1970s, the U.S. government introduced the Individual Retirement Account to address the growing number of retiring poor in the country. Under IRS rules, in 2013 any individual who has an earned income during a particular year may contribute $5,500 or the investor's taxable compensation for the year, whichever is less, to Traditional or Roth IRA accounts after meeting certain salary requirements, discussed below.

Traditional IRAs
Contributions to Traditional IRAs are tax deductible if certain conditions are met. First, the IRA owner may not be covered by an employer-sponsored retirement plan. The account holder must also meet modified adjusted gross income (AGI) requirements below a certain salary amount, depending on whether he or she is single or married. In 2013, an investor may contribute up to $5,500 to a Traditional IRA account. This amount may then increases in $500 increments per year thereafter, indexed to the cost-of-living adjustment (COLA).

Some participates in a qualified employer-sponsored retirement plan, may not be able to take the full deduction for their IRA contribution if they have reached certain income levels and he or she may only partially deduct the contribution amount.007. Similarly, the deduction is phased out for married couples who have access to a qualified employer-sponsored retirement plan and reach certain combined levels of AGI .


  • Spousal IRA: Spousal IRAs are used when one person in a married couple does not work and the working spouse earns at least $11,000 a year. In this case, the married couple can open two IRAs and contribute $5,500 to each account. The IRA owned by the nonworking spouse is called a spousal IRA.
  • Required Minimum Distribution (RMD): Investors who have not begun to take withdrawals from their Traditional IRAs by the age of 70.5 will incur a tax penalty. The individual who owns the IRA must begin taking required minimum distributions (RMDs) by April 1 following the year in which he or she reaches the age of 70.5.
Learn more about setting up and withdrawing from a Traditional IRA within the tutorial: Traditional IRAs.

In addition, ensure you know when one can take a tax deduction on any participant contribution made within the article: Traditional IRA Deductibility Limits.


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