Traditional IRA


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Traditional IRA

A tax-deferred individual retirement account that allows annual contributions of up to $2000 for each income earner. Contributions are fully deductible for all individuals who are not active participants in employer-sponsored plans or for plan participants within certain income ranges.

Traditional IRA

An investment retirement account in which a worker makes tax deductible contributions up to a certain limit throughout his/her working life. Unlike Roth IRAs, contributions are tax deductible but withdrawals are taxed, effectively deferring tax on the account until the worker begins making withdrawals in retirement. Importantly, however, tax deductibility of contributions depends on one's tax bracket. The limit to annual contributions varies by year and is indexed to inflation. Traditional IRAs are allowed to invest in securities and, in practice, normally own common stock and certificates of deposit. See also: 401(k).
References in periodicals archive ?
Converting a traditional IRA to a Roth IRA can offer powerful benefits, but it requires consideration of several factors.
The bankruptcy court relied on what it said was the plain language of Section 522(b)(3)(C) of the Bankruptcy Code and concluded that an inherited IRA "does not contain anyone's 'retirement funds,'" because unlike a traditional IRA, the funds in an inherited IRA "are not segregated to meet the needs of, nor distributed on the occasion of, any person's retirement" (id.
Additionally, average contributions to Roth IRAs continue to outpace average Traditional IRA contributions on both ends of the age spectrum.
Jameson Van Houten and Stonegate Financial Group present the advantages of a Roth IRA over a traditional IRA and discuss how individuals who earn high incomes can now take advantage of them.
But remember that if the $5,500 had gone directly into a traditional IRA, you would have reaped about $1,375 in tax savings each year at a 25 percent tax rate (more, with a higher tax rate).
If your client qualifies for this exception, is under age 59-and-a-half, and looking to roll over his or her 401(k) account to a Traditional IRA, you need to question the advisability of transferring the entire balance.
With a traditional IRA, contributions may be tax-deductible, earnings are tax-deferred, and there are no income limits for contributions.
Before looking at the issues specific to recharacterizations, the following will summarize the basic rules governing the federal income taxation of converting a traditional IRA account to a Roth IRA.
In a traditional IRA, you contribute money pre-tax each year (to a $5,000 or $6,000 annual max depending on your age), and then when you withdraw that money in retirement, it is considered income and taxed as such.
Additionally, there is an upfront tax that has to be paid on any money that hasn't already been taxed when electing to convert a traditional IRA to a Roth IRA.
The traditional IRA allows you to sock money away and get an immediate tax deduction.

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