Traditional IRA

An IRA allows you to set aside money for retirement, while offering you tax advantages. You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for a tax credit equal to a percentage of your contribution. Amounts in your IRA, including earnings, generally are not taxed, but withdrawals are subject to income taxes.

Who Can Contribute

Any individual, or couple filing jointly, under age 70½ with earned income may establish and make contributions to a traditional IRA. You can have a traditional IRA whether or not you are covered by any other retirement plan.

Contribution Limits

For 2009 and 2010, the IRA annual contribution and deduction limit is $5,000 or 100% of your taxable compensation for the year, whichever is smaller.

Catch Up Contributions

For 2009 and 2010, individuals age 50 and older may contribute up to an additional $1,000 to their IRA for a total contribution limit of $6,000 or 100% of your taxable compensation for the year, whichever is smaller.

Contribution Deadline

The deadline for contributions to a traditional IRA for the year is the due date of your return, excluding extensions. For most taxpayers, this due date is April 15th of the following year.

Contribution Deductibility

There are a variety of factors that determine whether you will be eligible to take a deduction on your IRA contributions, including your tax-filing status, modified adjusted gross income (MAGI) and you or your spouse’s retirement plan participation.

Use this table to determine how your MAGI will affect the amount of your deduction.

Year Tax-filing Status Retirement plan participation Fully Deductible if MAGI is… Partially Deductible if MAGI is… Not Deductible if MAGI is…
2009 Single Covered by a retirement plan at work $55,000 or less $55,001-$64,999 $65,000 or more
Single NOT covered by a retirement plan at work No maximum AGI limitation, eligible for a full deduction up the amount of your contribution.
Joint Covered by a retirement plan at work $89,000 or less $89,001-$108,999 $109,000 or more
Joint NOT covered by a retirement plan at work No maximum AGI limitation, eligible for a full deduction up the amount of your contribution.
Joint IRA Owner’s spouse, not IRA Owner, covered by a retirement plan at work $166,000 or less $166,001-$175,999 $176,000 or more
2010 Single Covered by a retirement plan at work $56,000 or less $56,001-$65,999 $66,000 or more
Single NOT covered by a retirement plan at work No maximum AGI limitation, eligible for a full deduction up the amount of your contribution.
Joint Covered by a retirement plan at work $89,000 or less $89,001-$108,999 $109,000 or more
Joint NOT covered by a retirement plan at work No maximum AGI limitation, eligible for a full deduction up the amount of your contribution.
Joint IRA Owner’s spouse, not IRA Owner, covered by a retirement plan at work $167,000 or less $167,001-$176,999 $177,000 or more

Traditional IRA Withdrawals

  • Amounts you withdraw from your IRA are fully or partially taxable in the year you withdraw them. If you made only deductible contributions, withdrawals are fully taxable.
  • Withdrawals made prior to age 59 1/2 may be subject to a 10% additional tax. However, if an emergency or other qualifying situation arises you may be eligible to take a withdrawal from your IRA without penalty. Such situations include:
    1. – Permanent disability or death of IRA owner
    2. – Qualified higher education costs
    3. – To pay non-reimbursed medical expenses or medical insurance premiums
    4. – To help pay for first-time home purchase
    5. – To pay back taxes to the IRS after a levy has been placed against the IRA
  • Traditional IRA account holders must begin distributing from their retirement accounts by April 1 following the year they reach age 70½. Known as required minimum distributions or RMDs, this amount must then be distributed each subsequent year.