What is a Traditional IRA?
- Author Jeremy Jones
- Published July 9, 2011
- Word count 582
If you are starting to research ways to start planning for your retirement, you may have run across the option of opening a traditional IRA, or individual retirement account, and wondered what a traditional IRA is, and is it the best option for you and your retirement? A traditional IRA is a retirement account with which you can save pre-tax dollars for use during retirement. The funds in your traditional IRA account can be invested in things like stocks, bonds, mutual funds, or CDs. You can set up and make contributions to a traditional IRA if you (or, if you file a joint return, your spouse) received taxable compensation during the year, and you were not age 70½ by the end of the year.
THE TRADITIONAL IRA PRETAX ADVANTAGE
The principal advantage of a traditional IRA is that in most cases the contributions are made on a pre-tax basis. This means that when you deposit money into your traditional IRA, you can deduct that amount from your taxable income which results in you paying less income tax for the year. In addition to receiving the tax deduction up front from your traditional IRA, the money in the traditional IRA account grows tax deferred. Any interest or gains from the traditional IRA investments are not taxed when the gains are realized. Instead, the gains from your traditional IRA are deferred until money is withdrawn from the IRA, at which point the money is taxed as ordinary income.
WHO IS ELIGIBLE FOR A TRADITIONAL IRA?
Anyone with earned income, who is under the age of 70 ½ is eligible to open a traditional IRA. There are however some restrictions as to who is permitted to deduct contributions, and income limits which are used to determine how much of the contributions are deductible, if you or your spouse are participants in an employer plan.
WHAT ARE TRADITIONAL IRA DISTRIBUTION REQUIREMENTS?
One issue to consider when determining if opening a traditional IRA is the right move for you and your retirement is the distribution requirement for traditional IRA accounts. With a traditional IRA, you must begin accepting distributions at the age of 70 ½ even if you don’t need the money yet. If you don’t take the minimum required deduction (RMD) from your traditional IRA account, then you will be subject to steep penalties. Additionally, any monies withdrawn from your traditional IRA prior to the age of 59 ½ will also be penalized with an early withdrawal fee, as well as the taxable amounts due.
IS A TRADITIONAL IRA RIGHT FOR YOU?
If you are one of the growing numbers of people whose employer doesn’t offer a retirement plan, then a traditional IRA account is generally a very good option for putting away pre-tax dollars towards your retirement. Keep in mind though that if you are married and you or your spouse contributes to an employer plan, there are different income limitations which will determine your eligibility to deduct the contributions. For most people in retirement, they find themselves in a lower tax bracket than when they were employed, which allows for a greater tax break on the contributions made to your traditional IRA during your working years. Later in life, when you are no longer working, or working much less, the money you withdraw from your traditional IRA will be taxed in a lower tax rate, which is the main reason so many find opening a traditional IRA one of the best options to start saving for their retirement.
Next Generation Trust Services is a professional third-party administrator of Traditional IRA accounts serving New Jersey, New York and Connecticut. Traditional IRA Accounts
Article source: https://articlebiz.comRate article
Article comments
There are no posted comments.
Related articles
- The Transformative Power of Yamaigel’s Certified Gel Eye Masks
- Checking account with cell phone protection!
- Keeping Cool This Summer: Air Conditioning Installation Services in Milwaukee
- A DIY Guide to Fixing Your Garage Door (with a Call to Garage Door Magnolia When All Else Fails!)
- Can a Bent Garage Door Be Bent Back into Shape? Don't Panic, Call Kiki Garage Door!
- How Can I Tell If My Garage Door Opener Sensor Is Bad?
- Maximizing Profitability: The Economics Behind Customizable Design Assets
- Exploring the Hidden Gems of Si Racha, Thailand
- DIY vs. Professional Movers: Pros and Cons in 2024
- MK Web Celebrates Top Position in Bourne's Premier Web Design Rankings
- The Road to Sobriety: Understanding Substance Use Disorders
- MotorKote Ultimate 40/60 Synthetic Hyper Mix 5W-30
- Exploring Denver on a Dime: A Frugal Travel Guide
- Top 10 Ways Production Scheduling in Business Central Transforms Manufacturing
- Strength Training and it's Incredible Benefits for Fat Burning
- Enhancing Home Security with Aluminum Shutters: A Focus on Weatherwell Elite
- 5 Easy Ways to Make Oral Hygiene Fun for the Whole Family
- Transforming Plastic Extrusion Machines into Recycling Powerhouses
- Unraveling the Potential of Plastic Extrusion Machines
- The Rise of Plastic Recycling Machines: A Step Towards Sustainability
- Strawberry Cheesecake Ice Cream: OMG! Unreal!
- The Advantages of Using Professional Home Cleaners in Ilford
- 8 Compelling Reasons to Hire Professional Home Cleaners
- The 12 Steps Narcotics Anonymous Program To Recovery
- Send Money to Tanzania: Effortless Transfers with SafariRemit
- Stylish Savings: 10 Frugal Ways to Stay Fashionable in 2024
- Fly Cheap With FlightPapa To Any City
- How Collaborating with a Software Development Company Can Propel Your Business Forward
- A Comprehensive Guide to Choosing the Best Hair Transplant Method
- 15 Frugal Tips for a Memorable Wedding Day