A traditional individual retirement account is one of the most common options individuals can utilize for retirement planning purposes. Although there are many different types of investment options to consider when opening a traditional IRA, the primary similarities that all traditional individual retirement accounts share are that they offer tax-deductible contributions (based on specific criteria) and tax-deferred growth.
Benefits of Traditional IRAs
Investing in traditional individual retirement accounts provides benefits to those looking to put aside money now for use during retirement years. There are two primary benefits of traditional individual retirement accounts. These are:
- Tax-deductible contributions – Contributions are fully or partially deductible from your taxable income. How much you can deduct depends on whether you are eligible to participate in another type of qualified retirement plan and where your adjusted gross income level lies in relation to established income guidelines.
- Tax-deferred growth – Any potential earnings accumulate tax-deferred. This means that you are not required to pay taxes on earnings until you withdraw the assets during retirement.
Traditional IRA Contribution Limits
There are no maximum contribution limits for traditional IRAs, although there are limits as to the tax-deductible portion of annual contributions. Traditional individual retirement account contribution limits are currently $5,500 annually (or up to 100% of earned income, if lower), provided that the investor is not eligible to participate in another qualified retirement plan and adjusted gross income (AGI) levels lie within established income guidelines. The traditional IRA contribution limit increases to $6,500 annually for those over 50 years of age (this is referred to as a “catch-up contribution”). Investors with spouses covered by employer-sponsored retirement plans may have the level of deductibility modified based on AGI. There are no traditional IRA contribution minimums, although some plans require a minimum to initially open a traditional IRA account.
Traditional IRA Rules
In addition to rules for traditional individual retirement accounts related to contribution limits, a few other rules apply to this type of retirement planning option. These include:
- Must have employment compensation in order to be eligible for traditional IRA contribution tax benefits.
- Withdrawals from traditional IRAs cannot be made before age 59 ½ (without penalty), with required minimum distributions starting at age 70 ½.
- A 10% penalty will be administered for withdrawals that occur prior to age 59 ½, in addition to taxation of withdrawal amounts.
- All withdrawals will be taxed at investor’s current income tax rate.
- Investors must be 18 years old to open a traditional individual retirement account.
Open a Traditional IRA
If you would like more information about opening a traditional individual retirement account, contact one of the experienced retirement planning specialists at Alamo Capital. We can help you create a long-term plan to meet your retirement goals and can advise you on how traditional IRAs can fit into your overall retirement planning portfolio.
For more information about traditional IRAs or to open a traditional individual retirement account, please either call our office at (877) 68-ALAMO – or – (877) 682-5266, fill out or brief contact form or email our office at [email protected].