Traditional IRA

The key benefit of a Traditional IRA is tax-deferred growth. In a Traditional IRA, your investments grow free of federal income taxes until money is withdrawn. If you qualify, you may be able to deduct your contributions. But eventually, you must pay federal income tax on investment earnings and any IRA contributions that you've deducted.

If you're eligible, you can contribute annually to your IRA and if you're married and file jointly, you can also contribute to your spouse's IRA. If you're over the age of 50, you can contribute more than younger investors, through a "catch up" provision.

Due to changing laws, it is always best to review your individual circumstances with a qualified tax advisor.

Eligibility to contribute:

You can contribute to your Traditional IRA if you're under 70½ and have earned income. Even if you're over 70½, you may contribute to a non-working spouse's IRA if the spouse has not reached age 70½.

Contribution limits and deductibility:

Check the table below to determine your maximum federal contribution.

You may be able to deduct all or part of each annual contribution from taxable income. Your ability to deduct depends upon your modified adjusted gross income (MAGI), marital status and whether you (or your spouse, if you're married) are covered by a retirement plan at work.

Deductibility limits can be confusing, so it's always wise to review your specific situation with your tax advisor.

If you (or your spouse, if you're married and file jointly) are not covered by a retirement plan such as a 401(k) or 403 (b), you can 
   deduct your entire IRA contribution - regardless of how much you earn.

If you (or your spouse, if you're married and file jointly) are covered by a retirement plan at work, the amount you can deduct, if any, 
   depends on your adjusted gross income (AGI).

If you (or your spouse) are covered by an employer-sponsored retirement plan, you can still contribute the maximum contribution each 
   year based on the table above. The amount that you can deduct, if any, depends on your MAGI. 

How much of your Traditional IRA contribution can you deduct?

Determine your filing status first, then based on the table below, find your MAGI. The final three columns show the maximum deduction for 2009, based on your age.

MAGI, Filing Status & Age                                                                   Year 2009
Single Filers	Married Filing Jointly		Married Filing Separately	*Maximum Deduction	*Maximum Deduction
	You Participate	Spouse Participates		Younger than Age 50	Age 50 and Older
$55,000 or Less	$89,000 or Less	$166,000 or Less	$0	$5,000	$6,000
$56,000	$91,000	$167,000	$1,000	$4,500	$5,400
$57,000	$93,000	$168,000	$2,000	$4,000	$4,800
$58,000	$95,000	$169,000	$3,000	$3,500	$4,200
$59,000	$97,000	$170,000	$4,000	$3,000	$3,600
$60,000	$99,000	$171,000	$5,000	$2,500	$3,000
$61,000	$101,000	$172,000	$6,000	$2,000	$2,400
$62,000	$103,000	$173,000	$7,000	$1,500	$1,800
$63,000	$105,000	$174,000	$8,000	$1,000	$1,200
$64,000	$107,000	$175,000	$9,000	$500	$600
$65,000 or More	$109,000 or More	$176,000 or More	$10,000 or More	$0	$0

* In the higher income brackets, you can still contribute the maximum of $5,000 ($6,000 for those 50 and older) but will only be able to deduct the amount shown. 

Note: If you are eligible to contribute to a Roth IRA and a Traditional IRA, you may contribute to both. However, total contributions may not exceed $5,000 or $6,000 for those 50 and older.

Contribution deadline:

You can contribute to an IRA for a specific tax year anytime during that year or up until the tax filing deadline, usually April 15 of the following year. 
Note: Even with a tax-filing extension, you cannot extend this deadline.

Withdrawing your money from a Traditional IRA

You can withdraw money from your Traditional IRA any time, but withdrawals before you reach 59½, are subject to income tax and a 10% federal early-withdrawal penalty. Early-withdrawal penalty exceptions are mentioned below.

The year you reach 70½, you're required to start minimum required distributions from your Traditional IRAs. You can withdraw your combined total required minimum distributions from any Traditional IRA if you have more than one.

Withdrawals are penalty-free before you're 59½.

Withdrawals before 59½, from a Traditional IRA are subject to a 10% federal early-withdrawal penalty and taxed as ordinary income. In addition to death and disability, however, there are certain special situations that allow you to make penalty-free withdrawals:

Home purchases: You can withdraw up to $10,000 of earnings without penalty to purchase a first home for yourself or your child. The 
   $10,000 is a lifetime benefit. That means it can be applied to the subsequent purchase of a future principal residence so long as there is 
   at least a two-year gap between the sale of one home and the purchase of the next.

College costs: You may withdraw money from a Traditional IRA to pay for college tuition, books, room and board, and certain other 
   expenses for yourself, your spouse or your child (must be enrolled at least part time).

Medical expenses: You may withdraw money penalty-free to pay for any medical expense greater than 7.5% of your AGI for yourself 
   or your immediate family.

Medical insurance: If you become unemployed, you may be able to withdraw money to pay certain medical insurance without penalty.

Periodic withdrawals: You may avoid early-withdrawal penalties from IRAs before 59½, by withdrawing funds as a series of 
   "substantially equal periodic payments." To qualify, your withdrawals must follow a regular schedule for at least five years or until you 
   reach 59½, whichever is later. You're subject to severe penalties if the schedule is not followed exactly. Before taking action it's wise to 
   discuss this issue carefully with a knowledgeable tax advisor.

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