Traditional IRA

You want to start saving for retirement, but you don't have access to a company-sponsored retirement plan. Or, you may already be contributing to your company-sponsored retirement plan, but would like to contribute more money than the maximum amount allowed. Whatever the case may be, a Traditional Individual Retirement Account (IRA) could be the answer.

A Traditional IRA allows anyone under the age of 70½ in the contribution year, with earned income, to contribute a certain amount each year, based on IRS guidelines. In addition, if you are age 50 or older by December 31 of the contribution year, you may also be eligible to make a catch-up contribution. The biggest benefit of a Traditional IRA is that your investment growth will be tax deferred1 until you begin taking distributions.

Greater Tax Deductibility

Another benefit of a Traditional IRA is that your contributions may be tax deductible and, thanks to expanded deductibility rules, more people are now eligible. For example, even if you have a retirement plan at work, you may be able to deduct contributions to a Traditional IRA depending on your income level (refer to chart below). Also, if you have a retirement plan at work and your spouse does not, contributions to your spouse's Traditional IRA may be deductible if your Modified Adjusted Gross Income (MAGI) is below a certain level. And, if neither you nor your spouse is covered by a retirement plan at work, your contributions are fully tax deductible, regardless of income level, but you must file a joint tax return.

You should also be aware that IRS penalties may apply for money that you withdraw2 from your Traditional IRA prior to age 59½. However, these penalties may be waived under certain conditions. For example, if you withdraw the money for eligible higher education expenses, a first time home purchase (as defined by the IRS with a $10,000 lifetime limit) or qualified medical expenses.

Traditional IRA MAGI Phase-Out Ranges for Contribution Deductibility
(if covered by an Employer-sponsored retirement plan)

Tax Year

Single

Married (both active participants)

Married (one spouse not active participant)

Full Deductibility Up To

Partial Deductibility Under
Full Deductibility Up To
Partial Deductibility Under
Full Deductibility Up To
Partial Deductibility Under
2011
$56,000
$66,000
$90,000
$110,000
$169,000
$179,000
2012
$58,000
$68,000
$92,000
$112,000
$173,000
$183,000

Note: For married individuals filing separately, the phase-out range is $0 - $10,000.

Traditional IRA Contribution Limits3

 
2011
2012
Traditional
$5,000
$5,000
Catch-up Contribution (age 50 or older in the contribution year)
$1,000
$1,000
Total Contribution Limit (age 50 or older)
$6,000
$6,000

For more information, contact a Financial Advisor.

 
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