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 In a Traditional IRA, your investments grow free of federal income taxes until money is withdrawn.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 70 1/2 and have earned income. Even if you're over 70 1/2, you may contribute to a nonworking spouse's IRA if the spouse has not reached age 70 1/2.

Contribution limits and deductibility

Check the table below to find what your maximum federal contribution levels are.

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 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, however, if any, depends on your MAGI.

How much of your Traditional IRA contribution can you deduct?

Determine your filing status first, than based on the table below, find your Modified Adjusted Gross Income (MAGI). In the final three columns you will see the maximum you may deduct for 2006 based on your age.

* In the higher income brackets, you can still contribute the maximum of $4,000 ($5,000 for those 50 or over) 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 $4,000 or $5,000 for those 50 and older.

We encourage you to check with your tax advisor to ensure that your assumptions and numbers are correct.

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. Dates may vary for residents of states acknowledging Patriot's Day.

Withdrawing your money from a Traditional IRA

You can withdraw money from your Traditional IRA any time, but withdrawals before you reach 59 1/2 , are subject to income tax and a 10% federal early-withdrawal penalty. Early-withdrawal penalty exceptions are mentioned below.

The year you reach 70 1/2, 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.

Penalty-free withdrawals before you're 59 1/2

Withdrawals before 59 1/2, 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 can generally withdraw money to pay certain medical insurance without penalty.
• Periodic withdrawals. You may avoid early-withdrawal penalties from IRAs before 59 1/2, 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 59 1/2, 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.