Traditional IRA

Who Can Contribute, and How Much?

The requirements for contributing to a Traditional IRA are few:
You can contribute

if you are under age 70 1/2
if you have earned income from employment
up to a maximum of $4,000 ($8,000 for spouses),
catch-up contribution ($1,000 for 2006-2007) if you are age 50 or older.

Are All Traditional IRA Contributions Tax Deductible?

One of the immediate benefits of contributing to a Traditional IRA is a tax deduction many receive on their income taxes. Traditional IRA contributors receive 100% deduction on their annual contribution if,

They are not an active participant under an employer's retirement plan, or (if they are)
During 2007, earn no more than $83,000 ($75,000 for 2006) if married and filing jointly, $52,000 ($50,000 for 2006) if filing single.

For those who are participants in an employer plan, Traditional IRA deductibility is gradually phased out above these income levels.

Can Other Assets Be Combined In A Traditional IRA?

Contributions made by an employer to a retirement plan known as a simplified employee pension (SEP) are actually contributed to a Traditional IRA, and can be combined with regular Traditional IRA contributions. Assets from a qualified retirement plan, tax-sheltered annuity or 457(b) deferred compensation plan can also be moved to a Traditional IRA by rollover, but are recommended to be kept separate from individual contributions.

When Can I Use My Traditional IRA Assets?

Unlike most employer retirement plans in which access is limited to such events as a change of employment, plan termination, reaching retirement age, death or disability, access to your Traditional IRA funds is guaranteed. However, until age 59 1/2 there is a 10% early distribution penalty unless you qualify for an exemption due to:

Disability,
qualifying medical expenses,
qualifying education expenses,
unemployment (under certain conditions)
qualifying first home purchase,
death,
receipt of your Traditional IRA assets in equal payments over your life expectancy,
IRA tax levy.

Am I Ever Required To Take Funds From My Traditional IRA?

Beginning in the year that a Traditional IRA holder turns age 70 1/2, distributions from a Traditional IRA must begin. These distributions are based generally on the person's Traditional IRA account balance divided by the applicable distribution period. since the purpose of Traditional IRA's is to provide for retirement, not to be a tax shelter, IRA holders who fail to take their required distribution are subject to penalty.