Frequently Asked Questions About Traditional IRA Accounts

The Traditional IRA was created for individuals that don't participate in an employer sponsored retirement plan. Although, certain individuals that do participate in an employer sponsored retirement program may still qualify for this IRA.*

Effective 2005 through 2008, annual contributions of $5,000 can be made or 100 percent of your earned income, whichever is less. Your earnings are tax deferred but will be taxed upon withdrawal.

Withdrawals are penalty-free** after age 59 ½, for the purchase of a first home, higher education or upon death. There is a required distribution at age 70 ½.

* Traditional IRA contributors receive a 100% deduction on their annual contribution if they are not an active participant under an employer's retirement plan. For those who are participants in an employer plan, Traditional IRA deductibility is based upon the MAGI for the individual or married couple filing jointly.

** Taxable distributions are not subject to the 10 percent early withdrawal penalty if the individual is 591/2, deceased, disabled, taking equal periodic payments over his/her life expectancy for at least five years or until age 59 1/2, whichever comes later, or for college expenses, first-time home purchase up to $10,000, certain medical expenses and certain other uses.

1. Who can contribute?
2. How much can I contribute?
3. Who can make deductible contributions?
4. What are the tax advantages?
5. When can I withdraw without restrictions?
6. How does the "catch-up" contribution plan work if I am age 50 or older?

17. Who can contribute?

Anyone under age 70 1/2 with income from compensation

17. How much can I contribute?

Assuming eligibility, total combined contributions to ROTH and Traditional IRAs up to $5,000 per year for 2005 through 2008 or 100% of compensation, whichever is less

17. Who can make deductible contributions?

Deductible contributions can by made by any of the following:
• Single individuals not active in employer retirement plans (regardless of income)
• Single individuals active in employer retirement plans with MAGI* of $63,000 or less
• Married couples with neither spouse active in an employer retirement plan (regardless of income)
• Married individuals active in employer retirement plans with joint tax returns showing MAGI* of $80,000 or less for 2005, $85,000 or less for 2006, and $105,000 or less for 2007 and later
• Married individuals not active in employer retirement plans with spouses who are, as long as MAGI* is $169,000 or less

17. What are the tax advantages?

• Earnings grow tax-deferred until withdrawn
• Contributions may be tax-deductible

17. When can I withdraw without restrictions?

You can withdraw penalty free for any of the following reasons:
• Qualified high-education expenses
• First-time home purchase
• After age 59 1/2
• Disability
• Qualified medical expenses exceeding 7.5% of income
• Payment to beneficiaries upon the owners death
• Payment of health insurance premiums while unemployed

17. How does the "catch-up" contribution plan work if I am age 50 or older?

 A special exception applies if you are age 50 or older that allows you to contribute an additional $500 to an IRA for the 2005 tax year, and an additional $1,000 for 2006 through 2010.  This limit will not be adjusted for inflation.

Not intended as tax advice.  Please consult a tax professional.