Traditional Ira

Written by Michael Federico
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A traditional IRA (Individual Retirement Account) allows for tax-deferred growth of earnings and deductible contributions. The holder of the IRA will not pay income tax until he makes withdrawals. Usually, this does not occur until retirement. If money is taken out of an IRA before retirement, there will usually be an extremely high tax penalty involved.

On top of the long-term tax deferral, contributions to a traditional IRA can often be deducted from one's gross income on a tax-form. This means that the IRA is growing without being taxed, and it is lowering fees or raising payments one makes to or receives from the IRS. These aspects of traditional IRAs have made them very appealing to people who are afraid they will never see a social security check when they retire. In fact, there is talk among politicians who would like to expand the capabilities of IRAs. As of now, however, the main focus is on Roth and not traditional IRAs.

Regulations for a Traditional IRA

A person cannot turn 70 1⁄2 years old during the year he contributes to a traditional IRA. Also, he must have earned some form of income over the course of the year. Contributions of up to $3,000 can be made to the IRA annually, but if a person's income is less than that, the amount he can contribute will be less. Also, a person over 50 will often be allowed to make additional contributions in order to make up for lost time.

There are investment options that come along with a traditional IRA. Annuities, bank CDs, and mutual funds are only a few of the options a person has when establishing an IRA. Traditional IRAs are not extremely difficult to apply for. Brokerage firms and other financial institutions offer programs, and there are also a number of sites on the Internet where a person can look into establishing a retirement account.


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