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Traditional Individual Retirement Accounts

What is a traditional IRA?

A traditional IRA is a type of retirement plan that has been in existence since 1975. Traditional IRAs offer tax-deferred earnings and the possibility for tax-deductible contributions. These tax advantages make the traditional IRA a powerful tool in creating a balanced, long-term savings plan. This article is not intended as tax advice. Consult a tax professional.

How does a traditional IRA work?

You can contribute to a traditional IRA if you earn compensation and you will not reach age 70½ by the end of the year. If you file a joint tax return, you can treat your spouse’s compensation as your own (except your combined contributions cannot exceed your combined compensation or contribution limit, whichever is less). All earnings in a traditional IRA are not taxed until they are withdrawn. The ability to defer taxes on the earnings, and to withdraw in a year when you may be in a lower tax bracket, can mean more after-tax dollars for your retirement.This article is not intended as tax advice. Contact a tax professional.You can contribute to a traditional IRA if you earn compensation and you will not reach age 70½ by the end of the year. If you file a joint tax return, you can treat your spouse’s compensation as your own (except your combined contributions cannot exceed your combined compensation or contribution limit, whichever is less). All earnings in a traditional IRA are not taxed until they are withdrawn. The ability to defer taxes on the earnings, and to withdraw in a year when you may be in a lower tax bracket, can mean more after-tax dollars for your retirement. This article is not intended as tax advice. Contact a tax professional.

How much can I contribute to a traditional IRA?
If you meet the eligibility tests described above and you are under age 50, you can contribute up to $5,500 for 2014 and 2015. For owners age 50 and older, your limit for 2014 and 2015 is $6,500.This article is not intended as tax advice. Contact a tax professional.
Can I still contribute to a traditional IRA if I participate in an employer-sponsored retirement plan?

Yes, your participation in an employer-sponsored retirement plan will not affect your ability to contribute to a traditional IRA (assuming age and compensation requirements are met). However, higher-income earners will lose their ability to deduct their traditional IRA contributions if participating in an employer-sponsored plan. This article is not intended as tax advice. Contact a tax professional.

If I already have a Roth IRA, can I have a traditional IRA, too?
Yes, you can. However, the limits on annual contributions described above apply to any combination of traditional and Roth IRA contributions that you make for the year. This article is not intended as tax advice. Contact a tax professional.
What about income taxes when I withdraw from my traditional IRA?

You will owe income taxes when you withdraw from your traditional IRA. However, if you make nondeductible contributions to a traditional IRA, a portion of each withdrawal will be treated as the nontaxable return of these contributions. This article is not intended as tax advice. Contact a tax professional.

If I make an early withdrawal from my traditional IRA before age 59½, do I pay a penalty?

In general, you must pay a ten percent tax on early distributions or withdrawals before age 59½. But the early distribution tax does not apply in the following situations:

a.Death

b.First-time homebuyer

c.Qualified higher education expenses

c.Certain unreimbursed medical expenses

e.Substantially equal periodic payments

f.Disability

g.Health insurance premiums during unemployment

h.IRS levy

i.Qualified reservist distributions

This article is not intended as tax advice. Contact a tax professional.

When must I begin taking distributions from my traditional IRA?

You must begin taking required minimum distributions from your traditional IRA at age 70 1/2. The minimum distributions each year will be computed using an IRS formula. You are allowed to delay the first year’s payment until April 1 of the following year, but you will receive two years’ worth of payments in your 71 1/2 year if you choose to delay. This article is not intended as tax advice. Contact a tax professional.

Can I move funds from a qualified retirement plan to a traditional IRA?

If you are entitled to receive an eligible rollover distribution from an employer’s plan, you can continue deferring taxes by moving the money into a traditional IRA. The best way to do this is to inform the plan administrator that you want the funds moved directly to your traditional IRA in a direct rollover. The plan administrator will inform you before making an eligible rollover distribution.

Can I move money from a traditional IRA to a Roth IRA?
You can move money from your traditional IRA to a Roth IRA if  you qualify for a Roth IRA based on your modified adjusted gross income for the year being  less than $100,000, and you are either single or married and filing a joint tax return. In the year you convert, you will have to pay federal income taxes on the amount that you move, except the portion that is treated as the return on your traditional IRA basis. You may also be subject to state income taxes. This article is not intended as tax advice. Contact a tax professional.
What happens to my traditional IRA after my death?

You may designate one or more beneficiaries to receive your IRA after your death. If your spouse is your beneficiary, he or she may directly transfer your traditional IRA to his or her own IRA tax-free. In addition, all beneficiaries have the option of taking a lump-sum payment or periodic payments over a number of years. Any tax-deferred money in your traditional IRA at the time of death will be taxed when it is distributed to your beneficiaries. This article is not intended as tax advice. Contact a tax professional.

Can I deduct contributions for a traditional IRA?

Refer to this IRS document to determine if your modified AGI affects the amount of your deduction.