The Traditional IRA allows you the benefit of tax-deductible contributions and the possibility of tax-deferred growth.
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.
Your contribution to a traditional IRA may be deductible on your federal income tax return. However, there is a phase-out of the IRA deduction if you are an active participant in an employer-sponsored retirement plan. The IRA deduction is reduced proportionately as modified adjusted gross income increases. If you are not an active participant in an employer-sponsored retirement plan, there is a phase-out of the IRA deduction based on income and, if married, based on whether or not your spouse is covered by a workplace retirement plan.
Please consult IRS Publication 590 for calculating your deductible contribution as it pertains to individual income and employer-sponsored retirement plan circumstances. Your contributions in excess of the permitted deduction will be considered non-deductible contributions.
DEDUCTION LIMIT - Effect of Modified AGI on Deduction – Covered by a Retirement Plan at Work
|Single Filers or Head of Household||$59,000 or less||More than $59,000 but less than $69,000||$69,000 or more|
|Married - filing jointly or Qualified Widow(er)||$95,000 or less||More than $95,000 but less than $115,000||$115,000 or more|
|Married - filing separately||N/A||Less than $10,000||$10,000 or more|
DEDUCTION LIMIT - Effect of Modified AGI on Deduction – You are NOT Covered by a Retirement Plan at Work (Spousal Coverage Considered)
|Married - filing jointly - spouse covered at work ||$178,000 or less||More than $178,000 but less than$188,000||$188,000 or more|
|Married - filing separately - spouse covered at work||N/A||Less than $10,000||$10,000 or more|
Traditional IRA Limitation and Required Distributions
You cannot contribute to a Traditional IRA if you will be 70½ by the end of the year.
Required minimum distributions must begin at age 70½ for Traditional.
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.
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.
The information provided herein is for reference only and does not purport to give tax or legal advice. Please consult your tax or legal adviser for more information regarding this material.