Individual Retirement Accounts

A Traditional IRA is a type of retirement plan that has been in existence since 1975. Traditional IRAs offer tax-deferred earnings and the possibility for tax-deductible contributions. These tax advantages make the Traditional IRA a powerful tool in creating a balanced, long-term savings plan.

Individuals with earned income can contribute to a Traditional IRA at any age. If you file a joint tax return, you can treat your spouse's compensation as your own (except your combined contributions cannot exceed your combined compensation). All earnings in a Traditional IRA are not taxed until they are withdrawn. The ability to defer taxes on the earnings, and to withdraw in a year when you may be in a lower tax bracket, can mean more after-tax dollars for your retirement.

If you meet the eligibility tests described above and you are under age 50, you can contribute up to $6,500 for 2023. For owners ages 50 and older, your limits increase to $7,500 for 2023.

Yes, your participation in an employer-sponsored retirement plan will not affect your ability to contribute to a Traditional IRA (assuming age and compensation requirements are met). However, higher-income earners will lose their ability to deduct their Traditional IRA contributions if participating in an employer-sponsored plan.

Yes, you can. However, the limits on annual contributions apply to any combination of Traditional and Roth IRA contributions that you make for the year.

If you're single or married and neither spouse is an active participant in a qualified retirement plan, your Traditional IRA contribution is deductible regardless of income. If you or your spouse is an active participant, you may deduct contributions only if your income is below certain limits.

Smaller deductions are available if your income is within the phase-out range, which is determined by your filing status. Higher-income earners with retirement plans may still contribute, but deductions are not available if income is over the phase-out range.

If you have questions about your specific tax situation, please consult your tax advisor for an interpretation of how these rules apply to you.

You may be able to receive a tax credit for making IRA contributions for the previous tax year. The credit is calculated based on a certain percentage; the full credit is 50 percent of the first $2,000 of contributions. Eligibility is based on the individuals' age, adjusted gross income (AGI), student status, status as a dependent, and tax return filing status. The AGI limits are subject to cost-of-living adjustments. For 2023, the maximum income levels for tax credit eligibility are $73,000 for joint owners, $54,750 for head of household, and $36,500 for all other filing statuses.

You will owe income taxes when you withdraw from your Traditional IRA. However, if you make nondeductible contributions to a Traditional IRA, a portion of each withdrawal will be treated as the nontaxable return of these contributions.

In general, you must pay a ten percent (10%) tax on early distributions or withdrawals before age 59 1/2. But the early distribution tax does not apply in the following situations:

1. Amount is rolled over or directly transferred to another Traditional IRA
2. Amount is properly converted to a Roth IRA
3. Withdrawal of an excess contribution before the tax return is due
4. Withdrawal of an excess contribution after the filing deadline if certain conditions are met
5. Payment is made to your beneficiaries after your death
6. Withdrawal of up to $10,000 is for first-time home purchase
7. Amount is used to pay for qualified postsecondary education expenses
8. Amount is used to pay for medical expenses in excess of 7.5% of adjusted gross income (AGI)
9. Amount is for pre-59 1/2 periodic payments
10. Distribution is to an owner who is disabled (as defined by the IRS code)
11. Distribution is for medical insurance premiums during unemployment that lasts 12 weeks or longer

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE ACT) made changes to the RMD rules. You must now begin taking required minimum distributions to your Traditional IRA at age 72. The minimum distributions each year will be computed using an IRS formula. For more information, view the RMD rules on the IRS website.

If you are entitled to receive an eligible rollover distribution from an employer's plan, you can continue deferring taxes by moving the money into a Traditional IRA. The best way to do this is to inform the plan administrator that you want the funds moved directly to your Traditional IRA in a direct rollover. The plan administrator will inform you before making an eligible rollover distribution.

Yes. An IRA-to-IRA transfer is generally the easiest way to move money or property from one IRA to another. The transfer is tax-free and the IRA holder does not receive the funds when conducting a direct transfer. The transactions are generally handled by the distributing and receiving financial organizations.

An IRA holder may also conduct a Traditional IRA to Traditional IRA Rollover. The transaction is reportable and the IRA holder generally has 60-days from the day he or she receives the distribution to complete the rollover. The IRA holder is allowed one IRA-to-IRA rollover per 12-month period, regardless of the number of IRAs he or she has.

Yes. You may move money from your Traditional IRA to a Roth IRA; This is called a Roth conversion. In the year you convert, you will have to pay federal income taxes on the amount that you move, except the portion that is treated as the return of your Traditional IRA basis. You may also be subject to state income taxes.

When an IRA holder dies, his/her designated beneficiary is entitled to the remaining balance in the IRA. If no beneficiary is named, the deceased IRA owner's estate generally is considered the beneficiary unless the IRA plan agreement indicates otherwise.