UNDERSTANDING a TRADITIONAL IRA
Traditional IRAs are retirement accounts that allow contributions with pre- or after-tax dollars, with no income or age restrictions. After-tax contributions are tax deductible in the current tax year.
Advantages of Traditional IRA
Contributions
- During your working years, you may contribute every year, but you aren’t required to do so.
- You must take distributions after the age of 72.
- No income or age restrictions make Traditional IRAs a very flexible option for most people.
Tax Deductibility
Tax deductibility within a Traditional IRA offers immediate tax benefits in the current year. Combined with an option to invest pre-tax dollars, you can enjoy more accumulations compared to an after-tax IRA. You will, of course, pay taxes upon withdrawal, when you may be in a lower tax bracket.
Your deduction may be limited if you (or your spouse, if you are married) are participating in an employer-based retirement plan and your income exceeds certain levels.
Money can grow tax-deferred
Your retirement money can grow tax-deferred, so you'll pay taxes on distributions of principal and earnings in retirement, when you may be in a lower tax bracket. You'll also receive a deduction on your taxes for the tax year of your contribution, based on IRS rules. Please consult with your tax advisor about your individual circumstances.
Employees with other Retirement Plans
Employees with compensation income and self-employed individuals with earned income are still eligible to contribute to a Traditional IRA.
Withdrawal benefits
You may be able to withdraw funds to pay for first home buying expenses or an eligible emergency without federal tax penalty. Check with your tax advisor for your circumstances.
Is a Traditional or Roth IRA Better for Me? It Depends!
This decision depends on your specific financial situation and retirement goals. Each type of IRA account offers certain features suited to different needs of individuals. We are here to help if you need a better understanding of the many types of IRA accounts to make a more informed decision.
Give us a call at 877-417-6161 to make an appointment.
