The Traditional IRA

The traditional IRA is a savings plan that allows you to defer taxes on the investment income you earn until retirement age.  In many cases, the money you contribute is tax deductible.

Eligibility.  Any one with earned income may open or add to a traditional IRA up to age 70 ½. There is no minimum age requirement as long as the IRA contribution comes from earned income.

Married Couples. Up to $4,000 can be contributed to an IRA for each spouse, even if one spouse has no earned income, provided that the combined compensation of both spouses is at least equal to the combined IRA contribution (maximum of $8,000).

Older Workers.  Workers who are age 50 or older before 2007 may contribute an additional $1,000 to an IRA in 2006, for a total of $5,000, provided that earned income is at least equal to the IRA contribution.

Deductibility. You may contribute 100% of your earnings up to $4,000 per year (less any Roth IRA contributions).  IRA contributions are fully deducted from income, unless you and your spouse are active participants in an employer-sponsored retirement plan, including a tax-deferred annuity.

Distribution. All IRA distributions are included in gross income in the year received, except that you are entitled to recover on a tax-free basis the amount of all non- deductible IRA contributions previously made. In addition:

• Premature distributions made prior to age 59 ½ are subject to a 10% excise or “penalty” tax in addition to the regular income tax on the amount of the distribution unless certain exceptions apply. Learn more about common IRA distribution mistakes.


• Minimum distributions from an IRA must begin April 1 of the year after the year in which the taxpayer reaches age 70 ½ , or a 50% excise tax is levied on the taxpayer based on the amount of the required distribution not taken.


• For purposes of estate taxes, the value of the IRA is included in the gross estate of the deceased owner and IRA distributions to the beneficiary are taxed in the same manner as if received by the IRA owner.