About Traditional IRAs
Prior to 1997, there was only one type of Individual Retirement Account (IRA). Because it was the only type, it didn’t have a special name – it was simply called an IRA. However, as a result of the Taxpayer Relief Act of 1997, this “original” IRA came to be called the “traditional” IRA. If you do not participate in an employer-sponsored retirement plan or would like to supplement that plan, a traditional IRA could work for you.
A traditional IRA is a special type of personal savings plan that provides certain tax advantages to encourage you to save money for retirement. A traditional IRA is a tax-deferred savings account, which means you may not have to pay taxes until you start receiving required distributions.
Individuals with an earned income can contribute directly to a traditional IRA. There are two types of direct contributions that you can make: deductible contributions and nondeductible contributions. If you have questions regarding deductible and nondeductible contributions, please contact your tax advisor. Please note annual contribution limits are set by the Internal Revenue Service (IRS).
In addition to contributing directly to a traditional IRA, you can also transfer assets from another type of retirement plan, such as a Simplified Employee Pension (SEP) or a Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA. Rollovers may also be made from a qualified employer-sponsored plan, such as a 401(k) or 403(b), after you change jobs or retire. (Make sure you understand the pros and cons of rolling funds from an employer plan to an IRA before you take any action, including leaving your funds in your employer plan, if the plan allows it.)
You must begin taking annual required minimum distributions (RMDs) from a traditional IRA after you reach a certain age, or you will be subject to a 50% income tax penalty on the amount that should have been withdrawn. The age at which you must begin withdrawing your RMD is set by the IRS.
Contribution and distribution rules vary, so, if you have questions regarding contributions or distributions, please contact a wealth team member. For tax related questions, please contact your tax advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. Withdrawals made prior to 59 1/2 may result in an IRS Penalty.