Anyone under age 70 1/2 who has earned income may contribute to a Traditional IRA. The amount you are eligible to contribute is the lesser of 100% of your compensation* or an amount that depends on whether you are age 50 or older. The following tables show maximum contribution limits for 2013.
Combined contribution limits** for a person who is not age 50 or older:
Combined contribution limits** for a person who is age 50 or older:
*Compensation is defined as income earned from performing material personal services including wages, salaries, fees, tips, bonuses, commissions, taxable alimony and separate maintenance payments.
**These limits must be reduced by any amount that you contributed to your Roth IRA for the same tax year.
Husbands and wives may each have an IRA, even if one person in that marriage is not working. Contributions may be made to a spousal IRA if certain rules are followed.
If you meet certain requirements, you may qualify for a tax credit when you make a contribution to an IRA. This tax credit reduces one’s tax liability on a dollar-for-dollar basis. Ask an IRA Specialist for more information on this credit or consult with your tax advisor.
The tax deduction for your IRA contribution depends on your filing status, whether or not you and/or your spouse is covered by an employer sponsored retirement plan at work, and your modified adjusted gross income (AGI).
- Single, not covered - Full deduction
- Married, neither you or spouse are covered - Full deduction
If you are single and you are covered under an employer-sponsored retirement plan, or if you are married and either you or your spouse is covered under an employer-sponsored retirement plan, then you will be entitled to only a partial deduction or no deduction depending on your income. Call an IRA Specialist or your tax advisor for more details.
Non-deductible contributions may be made to a Traditional IRA. Even though a contribution may not be tax deductible, you still receive the tax benefit of tax deferral on the IRA’s earnings.
Distributions may be taken out of a Traditional IRA any time, but money taken before the IRA owner reaches age 59 1/2 is considered an early distribution and is generally subject to a 10% penalty. The 10% penalty does not apply in certain situations. Some of these situations include death, disability, a first-time home purchase and certain qualified higher education expenses.
A first time homebuyer will be able to take an IRA distribution for home acquisition costs without incurring a 10% penalty tax. First-time homebuyers are defined as the accountholder, a spouse, child or grandchild of the accountholder.
Note: Distributions for first-time homebuyers will be limited to $10,000 for an individual's lifetime. In addition, if the purchase transaction falls through, the accountholder will have the ability to roll the funds back into the account within 120 days from disbursement of the funds.
Distributions to pay for current year education expenses will not be subject to a 10% penalty tax. Qualified education expenses include tuition, fees, books, supplies and equipment. If a student carries at least one-half of the normal full-time course load, expense amounts for room and board also can be included. Contact a tax advisor for details.
Note: Adjustments to the distributed amount will be made if a scholarship or a grant reduces an educational expense.
A Traditional IRA accountholder is required to start taking a minimum distribution by April 1 of the year following the calendar year in which you reach age 70 1/2, and by each December 31 thereafter. The amount that must be withdrawn is based on the IRA balance at the end of the prior calendar year and on a required minimum distribution schedule provided by the Internal Revenue Service.