The traditional IRA is a retirement savings vehicle, where taxes are deferred until the money is withdrawn starting at age 59 1/2. The IRA is held at a custodial financial institution and may be invested in any instrument the custodian allows. Unlike the Roth IRA the only criteria for being eligible to contribute to a Traditional IRA is sufficient income to make the contribution.
| Characteristics of a Traditional IRA | |
|---|---|
| 1. | As of 2011, the maximum annual contribution is $5,000. |
| 2. | Catch-up contributions can be made as of age 50 or older. |
| 3. | Contributions can be made to an ordinary Traditionl IRA until age 70 ½, afer which minimum distributions must be taken out. |
| 4. | Contributions are due by your tax-filing deadline which is usually April 15th. Extensions are excluded. |
| 5. | Penalty free withdrawals may start at age 59 ½, with appropriate payment of income taxes. Withdrawals may also be made in the event of disability, death (designated beneficiaries get the distribution), health insurance premiums due (certain unemployed individuals), qualified higher-education expenses, qualified first home purchase ($10,000 lifetime limit), certain medical expenses (over 7.5% of your Adjusted Gross Income). |
| 6. | Yearly mandatory minimum distributions must start once the age of 70 ½ is reached. Distributions must be made by April 1st of the following year and must be paid out by December 31st. |
If you or your spouse are contributing to your company retirement plans, you can still make tax-deductible contributions depending on the total of your Adjusted Gross Income. Current Tax-Deductible IRA Income limits as of 2011 are:
- $90,000 to $110,000 for Joint Filers
- $56,000 to $96,000 for Single Filers
Retirement & Education Accounts