Traditional IRA

The Economic Growth And Tax Relief Reconciliation Act of 2001 (EGTRRA) has helped more people than ever before take advantage of the incredible tax advantages available through IRAs:

• Contribution limits have increased
• "Catch-up" contributions were added for individuals who attain age 50 before the end of the taxable year
• It's easier to shift assets between plans
• Rollovers are easier

A Traditional IRA allows you to contribute money annually based on how much you've earned (such as wages) or up to IRS-established limits, some of which are age-related.

Contributions may be tax-deductible, partially deductible or non-deductible, depending on your income and whether you are covered by a retirement plan at work.

Taxes are deferred on traditional IRA earnings, meaning you'll owe on the money when you take it out.

You can contribute to a Traditional IRA:

• If you are under age 70½ for the year that the contribution is being made
• If you have earned income from employment equal to or greater than your IRA contribution

How much can you contribute?

The total annual contribution permitted to all IRA accounts (Traditional IRA and Roth IRA) is:

• 2005-2007: $4,000 for individuals ($8,000 for married couples)
• 2008 and beyond: $5,000 for individuals ($10,000 for married couples)

Beginning in 2009, the maximum contribution amount will be indexed for cost-of-living adjustments (COLA) in $500 increments.

Individuals who attain the age of 50 before the end of the taxable year may be eligible to contribute an additional amount to a Traditional and/or Roth IRA as a catch-up contribution as follows:

• 2002-2005: $500
• 2006 and beyond: $1,000

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. IRA contributors receive a 100% deduction on their annual contribution if:

• They do not receive benefits under an employer's retirement plan, or (if they do)
• Their modified adjusted gross income is no more than $85,000 if married and filing jointly or $53,000 for single filers for 2008.
• For those who are participants in an employer plan, IRA deductibility is gradually phased out above these income levels.

What access do you have to Traditional IRA funds?

Unlike most employer retirement plans where access to funds is limited to such events as change of employment, plan termination, reaching retirement age, death or disability, access to your IRA funds is guaranteed, always.

However, until age 59½ there is a 10 percent early distribution penalty unless you qualify for an exemption due to one of the following reasons:

• Disability
• Qualifying medical expenses
• Qualifying education expenses
• Unemployment (under certain conditions)
• Qualifying first home purchase
• Death

Beginning in the year that a Traditional IRA holder turns age 70½, distributions from a Traditional IRA must begin. These distributions are generally based on the person's IRA balance divided by his or her life expectancy, either singly or jointly with their IRA beneficiary.