Traditional IRA

Benefits of a Traditional IRA Plan

With so many retirement plan options available today, it is important that investors understand the differences, thus ensuring that they are invested in the right plan to help them meet their financial needs and goals. Traditional IRAs offer a tax-advantaged approach to accumulating funds for retirement. Traditional IRA attributes include:

Contributions may be tax-deductible, depending on your adjusted gross income (AGI) and whether you participate in a retirement plan at work.
Your potential earnings from your investments can grow on a tax-deferred basis. If your investments increase in value, you won't pay taxes on those earnings until you withdraw them - typically at retirement. Tax-deferred compounding can enhance the growth potential of your money.

Are Traditional IRA Contributions Tax Deductible?

Contributions may be 100 percent tax-deductible, depending on your adjusted gross income (AGI) and whether you or your spouse participates in a qualified retirement savings plan at work. For plan participants, the deduction phases out for AGIs between $32,000 to $44,000 for singles; or between $52,000 to $62,000 for joint filers. If you don't participate in a plan at work but your spouse does, the deduction phases out for a joint AGI between $150,000 and $160,000.

Can I Withdraw My Traditional IRA Funds?

It is not a good idea to withdraw traditional IRA funds prior to retirement, unless absolutely necessary. In most cases, a withdrawal from a traditional IRA before age 59 is subject to a 10 percent IRS penalty, in addition to ordinary income taxes. However, there are exceptions. These include:

To pay for the purchase of a first-time home ($10,000 lifetime cap) To cover expenses for higher education Medical expense payments Health insurance expenses (if account owner is unemployed) Permanent disability of account owner Death of account owner
Source: Provided by Idex Funds

Did your IRA originally come from an employer 401k or other retirement plan?
If so, see the Rollover IRA section also.

The chart below shows annual contribution limits.
For a Traditional IRA, you may contribute up to the lesser of: the current year's age-based limit or 100% of earned income. Please note that the dollar limit of your contribution is reduced by any contributions you make to a Roth IRA for the same tax year.

For 2007, if you are covered by a retirement plan at work, your deduction for contributions to a Traditional IRA is reduced (phased out) if your modified Adjusted Gross Income (AGI) is:
More than $83,000 but less than $103,000 for a married couple filing a joint return or a qualifying widow/widower
More than $52,000 but less than $62,000 for a single individual or head of household
Less than $10,000 for a married individual filing a separate return.
For 2007, if you are not covered by a retirement plan at work, your deduction for contributions to a traditional IRA may be reduced (phased out) if you either live with your spouse at any time during 2007 or file a joint return for 2007.

If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work (but you are not), your deduction is phased out if your AGI is more than $156,000 but less than $166,000.

If your AGI is $166,000 or more, you cannot take a deduction for contributions to a traditional IRA.

Source: Internal Revenue Service (IRS)

For more information or to have us answer any questions you may have, please call 1-800-559-2900, or email Atlantic Financial, see our contact Atlantic Financial page, or contact us

Also See: Rollover IRAs| Roth IRAs| SEP IRAs| Traditional IRAs