Why Establish a Traditional IRA?

A Traditional IRA is an excellent supplement to an individual’s retirement income. Making contributions is discretionary, so individuals can choose when they want to fund their Traditional IRA.

Contributions to a Traditional IRA may be tax deductible, and the earnings grow on a tax-deferred basis. This means that assets in the Traditional IRA are not taxed until they are withdrawn, allowing the owner to defer paying taxes until retirement, when he or she may be in a lower tax bracket, depending on his or her income and the tax rate that applies. Contributions are subject to statutory limits.
Individuals who are age 50 and older by the end of the year for which the contribution applies can make additional catch-up contributions. For instance, an individual who is under age 50 in 2011 may contribute up to $5,000 for tax year 2011, but an individual who is age 50 or older by the end of the year may contribute up to $6,000.

All IRA participant contributions must be made in cash (which includes checks). This means an IRA owner cannot make contributions in the form of securities.

Deducting IRA Contributions

An individual may be able to get a tax deduction for his or her IRA participant contribution. The ability to deduct a Traditional IRA contribution is determined by the following:

If allowed a deduction, the individual, depending on the above, will be permitted a full or partial deduction. We summarize how the above factors determine deductibility in Figure 2, below.

Active Participant Defined

Generally, active-participant status depends on whether the IRA owner participates in an employer-sponsored retirement plan, which includes the following:

  • Qualified plans, such as profit-sharing plans, defined-benefit plans, money-purchase pension, target-benefit plans and 401(k) plans
  • SEP IRAs
  • 403(b) plans
  • Qualified annuity plans
  • Employee-funded pension trusts (created before June 25, 1959)
  • Plans established for employees by the United States, a state or political subdivision of the United States, or an agency or instrumentality of the United States or any of its subdivisions

The rules that define an active participant vary among the different types of plans. For example, an individual is usually considered an active participant in a profit-sharing plan for the same year in which his or her employer deposits the contribution to the employer’s profit-sharing account, even if the contribution is being made for a different year.* This is not the case for a money-purchase pension plan. With this type of plan, the individual is considered an active participant for the year for which the contribution is made, regardless of when it was deposited.

* Employers have until their tax-filing deadline plus extensions to make contributions; therefore, a contribution for 2011 may be made in 2012.

Usually, the employer will indicate, by checking the “Retirement Plan Box” on the individual’s Form W-2, whether the individual is an active participant for the relevant year. Individuals should check with their employers to be sure.

Have more questions? Call us at 1-800-895-4918

IRA Eligibility

Anyone under age 70 ½ who has earned income equal to or greater than their IRA contribution amount.

  • If you contribute to an employer-sponsored plan like a 401(k) or 403(b), you are still eligible to contribute to a Traditional IRA account
  • If you have no earned income but your spouse earns enough income to cover your contribution as well as their own, you can contribute to a Traditional IRA account

Ways to Invest in IRAs

QCI Investment product offered thru TD Ameritrade Institutional 

  • Low cost Mutual Funds
  • Stocks, Bonds, ETFs
  • Bank products offered by TD Ameritrade Institutional
  • Money Market IRA
  • Featured CD IRA
  • Alternative Investments
  • Managed Futures
  • Hedge Funds
  • Managed Precious Metals investing
  • Managed Currency investing

Not sure if a Roth or Traditional IRA is right for you? Call us at 1-800-895-4918 to speak with an IRA specialist free of charge.

 We Offer No Fee IRAs

Annual and custodial fees waived for many of our IRAs.