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Many of us are aware of a traditional IRA, as it has been around for over 40 years.
Basic facts are:
- The maximum current contribution for people under age 50 is $5,500 and for individuals over 50 years of age it is $6,500.
- The contribution is not due until the filing of your tax return and is fully tax deductible if you qualify. The IRA account must be setup by the filing deadline or April 15th.
- To qualify for a full tax deduction neither you nor your spouse can be covered under any employer retirement plan. If you and your spouse are covered, then your contribution would still be fully or partially deductible based upon filing status and income limits.
- The deductible is fully phased out after an individual reaches $73,000 of adjusted gross income. When a joint return reaches $121,000 of total adjusted gross income, it is no longer fully deductible. If only one spouse is covered under an employer plan, the contribution is fully deductible up to $189,000 of total adjusted gross income and the deductibility is fully phased out at $199,000.
- Additionally, many times I get asked if an individual should make a contribution even if the contribution would be non-deductible. The benefit of this type of investment is that all the growth and income earned would be tax-deferred. When the funds are withdrawn, the original contributions are not taxed, but only the growth and income is subject to the tax rates in existence when the individual takes the distributions.