Traditional IRAs

The Traditional IRA allows you the benefit of tax-deductible contributions and the possibility of tax-deferred growth.

Contributions & Limits

For the 2010 year, you may make an annual contribution of $5,000 or 100% of your compensation, whichever is less, until you reach the age of 70½.  For individuals who have reached the age of 50 before the close of the tax year, the contribution limit is increased to $6,000.  See catch-up contributions below.

Deductible Contributions

Contributions are deductible if you are not covered by an employer-sponsored plan (not an “active participant”) or if you are an “active participant” and your annual income falls within specified limits.

For 2010, you may be able to claim the retirement savings contributions credit if your modified adjusted gross income (AGI) is not more than:

• $55,500 if you’re filing status is married filing jointly,
• $41,625 if you’re filing status is head of household, or
• $27,750 if you’re filing status is single, married filing separately, or qualifying widow(er)

More information about “active participation” in an employer sponsored plan and the income limits can be obtained from the IRS Publication 590.  The Aston IRA Disclosure Statement also contains helpful information.

Catch-up Contributions

An individual who attains the age of 50 before the close of the taxable year (December 31st) may make catch-up contributions in addition to the maximum contribution limit. You will be able to contribute:

• $1,000 in 2010

Traditional IRA Limitations

You cannot contribute to a Traditional IRA if you will be 70½ by the end of the year. You may contribute to both Traditional and Roth IRAs, however the maximum contribution cannot exceed the maximum annual contribution limit of $5,000 for 2010 or $6,000 if the catch-up applies. Potential increases may apply thereafter.

Individuals whose income is greater than the limitation imposed by the Roth and who are unable to make deductible contributions to a Traditional IRA can still make “non-deductible” contributions to the Traditional IRA. It is the responsibility of the IRA holder to keep track of these contributions. Non-deductible contributions must be reported on IRS Form 8606.

Withdrawals

Distributions taken from a Traditional IRA prior to age 59½ will incur a 10% penalty on the taxable portion of the distribution. There are some exceptions where money can be taken without a penalty such as a first-time home purchase, higher education expenses, death or disability and some medical expenses. Please consult your tax adviser or Publication 590 for further details.

Required Distributions

Required minimum distributions must begin at age 70½ for Traditional IRAs.