1. What is a Traditional IRA?
A traditional individual retirement account (IRA) is a tax-advantaged savings account that allows individuals to save for their retirements while reducing their taxable income.
2. Contribution Limits
For 2021, the maximum contribution limit for an individual’s traditional IRA is $6,000 if they are under age 50 and $7,000 if they are over age 50.
3. Tax Benefits
Contributions made towards your traditional IRA can be deducted from your taxable income in the year in which it was made. Additionally, any investment gains within the account will grow tax-deferred until withdrawal during retirement.
4. Eligibility
Individuals who have earned income and are under age 72 may contribute to a traditional IRA. However, there are also certain income limitations on deducting contributions based on filing status and modified adjusted gross income (MAGI).
5. Deadline to Contribute
The deadline to make contributions for the current tax year is April 15th of the following year or when you file your taxes – whichever comes first.
6. Spousal Contributions
If one spouse does not work outside of the home but their partner does, they may still contribute up to $6,000 annually into their own separate Traditional IRA account by using spousal contributions provisions.
7. Rollovers
You may rollover funds from other qualifying retirement accounts like a previous employer’s 401(k) plan into an existing Traditional IRA without paying taxes or penalties at that time – as long as you do so within strict guidelines set forth by the IRS
8 . Early Withdrawals
Early withdrawals before reaching age 59½ will result in a penalty fee unless qualified expenses such as higher education costs or medical bills occur.
9 . Required Minimum Distributions (RMDs)
Starting at age 72 , Traditional IRAs require minimum distributions each year based on amounts calculated by the IRS.
10 . Why contribute?
Contributions made towards a Traditional IRA can help you save for retirement and reduce your taxable income. It is always wise to consult with an investment professional or tax advisor to determine the best course of action when it comes to investing in any type of account.