Traditional IRA Regulations
Congress created traditional Individual Retirement Accounts in 1974 to offer people without an employer-sponsored retirement plan the ability to benefit from tax-advantaged retirement accounts. Traditional IRAs offer tax-deferred savings for retirement.
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Who Can Contribute?
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You must be under age 70 1/2 in order to contribute to a traditional IRA. In addition, you must have earned income for the year, which includes your wages and salaries, but not your investment income.
Function
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Most traditional IRA contributions can be deducted as an adjustment to income on your annual taxes. The money then grows tax-free as long as it remains in the account, which helps the returns compound faster so you have more money in the account at retirement.
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Time Frame
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IRA withdrawals taken before age 59 1/2 are non-qualified withdrawals, which means they are subject to a 10 percent early withdrawal penalty on top of income taxes, unless an exception applies, such as a permanent disability. Withdrawals after age 59 1/2 must still be reported as taxable income. Starting at age 70 1/2, you must start taking mandatory distributions from your traditional IRA, which are still included as taxable income.
Considerations
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If you or your spouse has a retirement plan at work, and your modified adjusted gross income exceeds the annual limits for your filing status, you can still contribute, but you will not be able to deduct your contributions from your taxes.
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