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 ?
RMDs are triggered on traditional IRAs at age 70%, but RMDs do not apply to Roth IRAs.
The Supreme Court then noted that both traditional IRAs and Roth IRAs are specifically structured to encourage individuals to save for retirement rather than as general tax-advantaged savings vehicles.
July 17, 2014 /PRNewswire-iReach/ -- In the past, individuals and couples who earn high incomes have not been allowed to invest in Roth Individual Retirement Arrangements (IRAs) and have only been allowed to pay into traditional IRAs.
While traditional IRAs are tax-deferred, Roth IRAs are designed to be tax-exempt.
Significant client discussions arose when it was announced IRA owners would have two years to pay the taxes due when converting traditional IRAs to Roth IRAs.
Many individuals took advantage of this and converted all or part of their traditional IRAs to Roth IRAs.
2) Although popular before 2010, interest in Roth IRAs has grown exponentially due to the lifting of the $100,000 modified adjusted gross income cap that previously prevented high-income taxpayers from converting (3) traditional IRAs (or other types of eligible retirement plans) (4) to Roth IRAs.
Thanks to some recent tax law changes, high-net-worth individuals who are exploring additional ways to build retirement savings may want to take a closer look at traditional IRAs.
Traditional IRAs and certain other retirement plan benefits can be converted to a Roth IRA via a rollover or direct transfer, or by designating an existing account as a Roth account.
The silver lining of the sell-off in the financial markets is that the tax bill for investors converting their traditional IRAs to Roth IRAs may be less.
For example, according to representatives of financial firms and advisors GAO interviewed, taxpayers may not understand that the annual contribution limit applies across traditional IRAs and Roth IRAs in combination.
Also, unlike traditional IRAs, Roth IRAs are not subject to minimum distribution rules that require you to start taking withdrawals at age 70 1/2.

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