How does a Traditional IRA work?
The money you contribute to your Traditional IRA Plan may be deductible on your annual income taxes. The earnings made on your Traditional IRA Plan aren’t taxed until the time you make a withdrawal. Withdrawals can be made without penalty once you reach the age of 59. You must start taking Required Minimum Distributions (RMDs) from your Traditional IRA Plan when you reach the age of 70½. This IRA is an excellent option for anyone eager to save for retirement and reduce their taxes at the same time.
You can set up a Traditional IRA at a financial institution such as a bank, or you can set it up through a stockbroker at an investment firm. Together, you and your financial advisor will discuss what your investment goals are and decide what types of investment are best for you. Then, you will fill out the appropriate paperwork and make an initial deposit of money which your financial advisor will invest. Then, you can make periodic contributions of more money according to the contribution rules. When you make a contribution to your Traditional IRA, you deposit money into it. This money is then invested in a variety of ways, usually in mutual funds or certificates of deposit. The investments make money by earning interest, receiving dividends or increasing in share value, and the earnings are reinvested and not withdrawn from the account for a number of years. This reinvestment causes the compounding effect, which generally results in the investment’s value skyrocketing as the years p
A. You can contribute to a traditional if you earn compensation and you will not reach age 70 by the end of the year. If you file a joint tax return, you can treat your spouses compensation as your own (except your combines compensation). All earnings in a traditional IRA are not taxed until they are withdrawn. The ability to defer taxes on the earnings, and to withdraw in a year when you may be in a lower tax bracket, can mean more after-tax dollars for your retirement. Q. How much can I contribute to a traditional IRA? A. If you meet the eligibility tests described above and you are under age 50, you can contribute up to $4,000 for 2005 through 2007. For owners age 50 and older, your limits increase to $4,500 for 2005, and $5,000 for 2006 and 2007. Q. Can I still contribute to a traditional IRA if I participate in an employer-sponsored retirement plan? A. Yes, your participation in an employer-sponsored retirement plan will not affect your ability to contribute to a traditional IRA (
A. You can contribute to a traditional IRA if you earn compensation and you will not reach age 70 1/2 by the end of the year. If you file a joint tax return, you can treat your spouse’s compensation as your own (except your combined contributions cannot exceed your combined compensation or contribution limit, whichever is less). All earnings in a traditional IRA are not taxed until they are withdrawn. The ability to defer taxes on the earnings, and to withdraw in a year when you may be in a lower tax bracket, can mean more after-tax dollars for your retirement.
