The Traditional IRA

Features and Benefits of a Traditional IRA
When can you deduct contributions to a Traditional IRA?
Who should consider a Traditional IRA?

What is a Traditional IRA?

A Traditional IRA is the "original" IRA. It is available to anyone, regardless of adjusted gross income. Contributions to a Traditional IRA may be deductible from current federal taxable income. Taxes must be paid upon withdrawal of any deductible contributions plus earnings and on the earnings from your non-deductible contributions.

Features and Benefits of a Traditional IRA

Individuals may contribute up to $5,000 in 2009 and married couples filing a joint tax return may contribute up to $10,000 in 2009 to a Traditional IRA. In either case, contributors must be under age 70½. (If you have both a Traditional and Roth IRA, your total contributions cannot exceed the contribution limit per person per tax year.) Individuals age 50 and older may increase their contributions by $1,000 in 2009.
Contributions may be tax deductible from your current federal income.
The earnings on your investments are tax-deferred until you make withdrawals from the Traditional IRA.
Prior to age 59½, distributions may be taken from a Traditional IRA for certain reasons without incurring a 10% penalty on earnings.
By age 70½, you must begin to take certain minimum distribution amounts from your Traditional IRA. Note: This has been waived for 2009.

When can you deduct contributions to a Traditional IRA?

As you can see, part of the attractiveness of a Traditional IRA is the potential to take a tax deduction from your current federal income on your contributions. You can fully deduct your contributions to your Traditional IRA from your federal taxable income if:

You or your spouse are not active participants in an employer-sponsored retirement plan, including pension, profit sharing, 401(k), SEP/IRA or 403(b) plans; or
Your spouse is an active participant in an employer-sponsored plan and you are an at-home spouse or a spouse not covered by a retirement plan and your joint income is below $166,000 in 2009; or
You are an active participant in an employer-sponsored plan and your adjusted gross income (AGI) is $55,000 in 2009 or less for single taxpayers. For married taxpayers filing jointly it is $89,000 in 2009.

You can partially deduct your contribution to a Traditional IRA even if you participate in an employer-sponsored retirement plan if your AGI is between $55,000 and $65,000 in 2009 for single taxpayers. For married taxpayers filing jointly it is between $89,000 and $109,000 in 2009.

Different rules apply if you are married and file separate income tax returns. Consult your tax advisor for more information.

Who should consider a Traditional IRA?

Generally speaking, you may want to open a Traditional IRA if:

You are eligible to deduct your contributions, whether fully or partially.
You expect to be in a lower tax bracket when you retire.
You are not covered by your employer's retirement plan.
Your AGI exceeds the contribution limits for a Roth IRA.

Dearborn & Creggs Can Help

Today, you may no longer rely on just your company pension and Social Security to provide adequate funds for retirement. You should consider developing a retirement investment plan that makes maximum use of available tax benefits, so that your retirement assets will grow more quickly.

A Dearborn & Creggs financial representative looks forward to working with you to explore the opportunities offered by a Traditional IRA.