Traditional IRAs

The Individual Retirement Account was created by congress in 1974. IRAs were created to give consumers a tax-advantaged incentive to save for retirement. This is now called a traditional IRA.

The traditional IRA is a great vehicle for savings and is available to anyone under the age of 70 ½ who has income from wages.

Contributions to traditional IRAs became tax deductible to more people in 1998, and income tax on the account’s earnings is still deferred until the funds are withdrawn.

How Much Can I Contribute?

Traditional Aggregate Annual Regular Contribution Limits
YEAR
Annual Regular Contribution Limit
Additional “Catch-up” Contribution for Owners Age 50 and Older
2018
$5,500
$1000 ($6,500 Total)
2017
$5,500
$1000 ($6,500 Total)
  • Cannot exceed compensation
  • Reduces contributions that can be made to Roth IRAs

Who can make deductible contributions?

Fully deductible contributions:

  • Single individuals not active in employer plans (regardless of income)
  • Single individuals active in employer retirement plans with MAGI* of $56,000 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 return showing MAGI* of $89,000 or less.
  • Married individuals not active in employer retirement plans with spouses who are, as long as MAGI* is $167,000 or less.

Individuals with income exceeding the above limits may be able to make deductible contributions of less then amounts stated in table above.

* MAGI – modified adjusted gross income from your federal tax return.

When may I make withdrawals from my IRA?

You may withdraw from your traditional IRA at age 59 ½ without penalty. Prior to age 59 ½ you will be subject to a 10% penalty. However you may make penalty free withdrawals for:

  • Qualified higher education expenses
  • Qualified medical expenses exceeding 7½ % of income
  • Payment to beneficiaries upon the owner’s death
  • Payment of health insurance premiums when unemployed 12 weeks or longer
  • First-time home purchases **
  • Disability

**Lifetime limit for exemption on first-time home purchase is $10,000