In the early 1970s, the
Not all types of investments are permitted within IRAs. Permissible investments include stocks, bonds, mutual funds, annuities, government securities, and gold or silver coins minted by the U.S. Treasury. Other investments such as collectibles, insurance policies, art and other types of coins are not permitted.
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 adjusted gross income (AGI) requirements below a certain salary amount, depending on whether he or she is single or married. In 2005, an investor could contribute up to $4,000 to a Traditional IRA account. This amount increases to $5,000 in 2008, and then increases in $500 increments per year thereafter, indexed to the cost-of-living adjustment (COLA).
If the investor is single, participates in a qualified employer-sponsored retirement plan, and earns a salary between $40,000 and $50,000, the deduction is slowly phased out, and he or she can only partially deduct the contribution amount for 2006. Similarly, the deduction is phased out for married couples who have access to a qualified employer-sponsored retirement plan and earn a combined AGI between $60,000 and $70,000.
- Spousal IRA: Spousal IRAs are available for couples that include a non-working spouse. Up to $8,000 can be contributed - but no more than 100% of the working spouse's income. In this case, the married couple can open two IRAs and contribute $4,000 to each account, for a total of $8,000. The IRA owned by the nonworking spouse is called a spousal IRA.
If one spouse doesn\'t work, and the other spouse earns a yearly income of $7,000, the maximum IRA contribution for the couple will be $7,000. This is because the couple cannot contribute more than 100% of the working spouse\'s income.
: 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. If a person fails to withdraw any amount that should have been distributed under these mandatory minimum requirements, a 50% tax penalty applies to the amount not distributed.
The following information applies to Traditional IRAs only:
- Earnings are tax-deferred until withdrawn.
- If deductible contributions are made, 100% of withdrawals are subject to taxation at ordinary income rates.
- If non-deductible contributions are made, a portion of each withdrawal is not taxable.
- Contributions may not be made after the IRA owner turns age 70.5, even if he or she is still employed.
Learn more about setting up and withdrawing from a Traditional IRA in the Traditional IRAs tutorial.
In addition, ensure you know when one can take a tax deduction on any participant contribution made within the Traditional IRA Deductibility Limits article.
Financial AdvisorBy understanding the major rules for both traditional and Roth IRAs, you'll be prepared to enjoy the benefits of these investment opportunities.
RetirementTo answer this question, you need to consider several of the factors we outline here.
RetirementA traditional IRA is a tax-advantaged retirement account that includes stocks, bonds, mutual funds and other investments.
Financial AdvisorThis comprehensive guide goes through what a Traditional IRA is and how to set one up, contribute to it and withdraw from it.
RetirementMoney in an IRA can work harder for you. Here's what you need to know first.
RetirementA traditional IRA gives you a current-year tax benefit and future years of tax savings – minus the income restrictions that limit who can have a Roth IRA.
RetirementChoosing a Traditional IRA over a Roth IRA, or vice versa, depends on financial situation and long-term goals, especially if you want to trade.
RetirementThe answer depends on where you are in your career and personal life each year. Here are some scenarios and rules to think about.