Traditional IRA

Contributions made to a Traditional IRA are generally tax-deductible* — meaning you are funding this type of IRA with pre-tax dollars. This offers the potential to accumulate retirement savings at a significantly faster rate than would be true otherwise. However, when you withdraw money in retirement, the withdrawals are taxed as ordinary income. This means that a Traditional IRA will prove especially attractive to individuals who expect their tax bracket to drop considerably in retirement, and are confident they will not need to withdraw funds prior to age 59½.

* If neither you nor your spouse participates in an employer-sponsored retirement plan, e.g., a 401(k) or a pension plan, then all your contributions to a Traditional IRA are fully deductible. If you do have a 401(k) or pension plan you may still qualify for deductions depending on your annual income and marital status:

Filling Status	Full Dedcution	Phase Out
Single, head of household	$53,000 or less	$53,000 - $63,000
Married, filing jointly	$85,000 or less	$85,000 - $105,000
Married, filing separately		Less than $10,000

Note that there are Contribution Limits that apply to a Traditional IRA:
Age 49 and below: $5000/yr
Age 50 and above: $6000/yr (includes $1000/yr of “catch-up” contributions)

Advantages of Traditional IRA

• Contributions, as well as earnings on contributions, are tax-deferred — allowing one to fund retirement savings with pre-tax dollars and then pay taxes only upon withdrawal (at, potentially, a considerably lower tax rate).
• There is no income threshold limiting eligibility to contribute.

Disadvantages of a Traditional IRA

• Withdrawals must begin at the later of age 70 ½ or retirement.
• It may be difficult to reliably estimate your likely tax bracket in retirement.

Distributions

Withdrawals without penalty can begin at age 59 ½, or if the account owner becomes disabled. Early withdrawals are subject to a 10% penalty. Forced distributions must start after age 70 ½, or retirement, whichever is later. Withdrawals of limited amounts are permitted for home purchase down payment, qualified education expenses and unreimbursed medical expenses. Click here to learn more about these provisions.

A Traditional IRA is a reliable and efficient tax advantaged retirement savings vehicle. You can open a Traditional IRA with Eventide easily. Please click here and follow the very simple steps to create your own Traditional IRA.