Investing Tax Free

Traditional IRA

The Traditional IRA is the most common type of IRA or individual retirement account. The Traditional IRA is itself not an investment but an account to hold all your investments until retirement. Assets in the Traditional IRA grow tax deferred. You are not taxed on any Traditional IRA investments until you withdraw the assets from the account.

Traditional IRA Eligibility

Anyone under the age of 70½ with "earned income" is eligible to SET UP a traditional IRA. Note that "passive income" such as those from rents and dividends do not count. Most retired people do not have earned income and are therefore not eligible to set up a traditional IRA.

Establishment deadline for traditional IRA

You must establish the IRA by tax filing due date, no extensions.

How to set up Traditional IRA

To set up a traditional IRA, you need to go to a financial institution such as a brokerage firm or a bank. You will open up an IRA account at the financial institution and put money in (contribute) no more than the IRA Contribution Limit.

Traditional IRA Fees

All financial institutions will charge you an annual account fee or custodial fee. This is usually between $20 and $60. Many financial institutions will waive this fee if your account balance is above certain level such as $10,000.

Contributions to Traditional IRA

This is the amount you can deposit in your IRA a year.

Total Contributions to Traditional IRA

100% of compensation or the limit set by the IRS per individual, whichever is less. Married couples filing jointly can contribute twice as much. Separate IRA accounts required; neither IRA can exceed the total contribution amount per account. The total IRA contribution limits apply in the aggregate to both Traditional and Roth IRAs.

Catch Up Contributions for Traditional IRA

Individuals age 50 or over may make additional catch-up IRA contributions.

Traditional IRA deductible Contribution

An individual who is not an active participant in an employer plan can make fully deductible contributions. The deduction is phased out for active participants whose AGI s exceed certain amounts.

Traditional IRA Deductible Contribution for Non-Active Plan Participant Spouse

An individual who does not participate in an employer-sponsored retirement plan but whose spouse does participate will be eligible to make deductible IRA contributions, but the deduction is phased out at certain levels of adjusted gross income.

Traditional IRA Non Deductible Contributions

Non-deductible contributions permitted but the total contribution to the Traditional IRA must not exceed the amount set by the IRS.

Contribution Deadline for Traditional IRA

Tax filing due date. No extensions.

Contribution Minimum for Traditional IRA

Each financial institution has different minimums. A common minimum among large brokerage firms is $250.