What is a Traditional IRA?
The traditional individual retirement account (IRA) is a popular retirement plan for many investors. Besides helping to provide your retirement nest egg, the contributions you make may be tax-deductible. In order to identify the traditional IRA, it may help if we distinguish it from the Roth IRA. The differences lie in deductibility and taxability. For the sake of clarity, remember that every IRA has two components: the contributions you make to it, and the earnings that grow in it. The traditional IRA has these characteristics: • Contributions you make may be tax-deductible. • If your contributions are deductible, you will be taxed on them when you make withdrawals (your contributions must be taxed at some point). • The dividends and capital gains that build on your contributions will not be taxed until you make withdrawals. The Roth IRA has these characteristics: • Contributions you make are never tax-deductible. • You will not be taxed on your contributions when you withdraw them. •
A Traditional IRA (Individual Retirement Account) is a self-sponsored retirement savings plan. Contributions to an IRA may or may not be tax-deductible depending on your adjusted gross income. Consult your tax advisor to answer questions about your eligibility for tax deductions. Beginning January 2007, you may contribute up to the lesser of 100% of compensation or $4,000. Non-working spouses may also contribute up to $4,000 to an IRA. For individuals age 50+, the contribution limit is increased by $500 from 2002 through 2005 and by $1,000 thereafter.
Please Note: LSW cannot give legal, tax, or accounting advice. The following general information is our understanding of current tax laws and regulations for Individual Retirement Accounts. Please consult your own attorney, accountant, or tax advisor for advice about your own situation. A Traditional IRA (Individual Retirement Account) is a self-sponsored retirement savings plan. Contributions to an IRA may or may not be tax-deductible depending on your adjusted gross income. Consult your tax advisor to answer questions about your eligibility for tax deductions. Beginning January 2007, you may contribute up to the lesser of 100% of compensation or $4,000. Non-working spouses may also contribute up to $4,000 to an IRA. For individuals age 50+, the contribution limit is increased by $500 from 2002 through 2005 and by $1,000 thereafter.
