Traditional IRA
Traditional Individual Retirement Accounts are special tax-deferred investment accounts created by the federal government to encourage Americans to save money for their retirement years and other important financial goals. Taxpayers have tax deductible and non-tax deductible options.
Traditional IRA - Deductible | Traditional IRA - Non-Deductible | |
Tax Benefits | Tax deductible contributions and tax-deferred earnings | Tax-deferred earnings |
Eligibility | Individual with earned income (and non-working spouse) under age 70½, subject to income limits below. | Individual with earned income (and non-working spouse) under age 70½, regardless of plan participation status or income. |
Deduction of Contributions (2014) | Individual and/or spouse NOT covered by plan at work
Individual and/or spouse covered by plan at work, deduction limits for Modified Adjusted Gross Income (MAGI): Single or Head of Household:
Married Filing Separately: **:
If one spouse is covered by a retirement plan at work and one spouse is not covered by an employer sponsored plan (401(k), 403(b), SEP IRA, SIMPLE IRA, etc), the spouse without a plan has deduction limits for the following Modified Adjusted Gross Income (MAGI): Married Filing Jointly:
** If an individual did not live with their spouse at any time during the year, their filing status is considered as single for this purpose. | Contributions are not deductible |
Basic Annual Contributions (2014) | Lesser of 100% of earned income or $5,500 (for each spouse). Aggregated with Roth IRA contributions. | Same |
Catch-Up Contributions (2014) | IRA holders age 50 or older may contribute an addiitional $1,000 (for each spouse) or 100% or earned income, whichever is less. Aggregated with Roth IRA contributions. | Same |
Contribution Deadline | May be established and contributions may be accepted for a particular tax year until the due date for filing the individual's federal tax return --no extensions. When the due date for any act for tax purposes --filing a return, paying taxes, etc. -- falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day. | Same |
Rollover Contributions | Eligible distributions from another Traditional IRA, SEP IRA, or (after 2 years) SIMPLE IRA, 401(k), government 457 plans, 403(b). No taxes until distribution taken from IRA. | Same |
Mandatory Distributions | Age 70½ or death. | Same |
Taxes on Distributions | Ordinary income. 10% penalty before age 59½ unless due to death, disability, substantially equal periodic payments (SEPP), eligible medical expenses, certain unemployed individual's health insurance premium's, qualified "first-time" homebuyer ($10,000 lifetime max), qualified higher education expenses, Roth conversion, qualified reservist, or IRS levy. | Each distribution partially taxable and partially tax free according to the Pro Rata Rule Ordinary income on taxable portion. Taxable amounts subject to same 10% penalty tax and exceptions as deductible IRA. |