Traditional IRA

The traditional Individual retirement account is the type of IRA which may or may not be what you always thought of as the "regular" type of IRA. Traditional IRA rules are somewhat different from Roth IRA rules and Sep IRA rules. The IRA withdrawal rules and IRA distribution rules pertaining to traditional IRA are unique and not to be confused with similar Roth IRA rules and other type of IRA rules.

Lets look at what makes Traditional IRA different from the other types of IRA such as Roth IRA, SEP IRA, and SIMLE IRA. All individual retirement accounts including traditional IRA and Roth IRA are defined by the IRA rules associated with them. So, first we have to understand the traditional IRA rules that define traditional individual retirement accounts. 

Traditional IRA Eligibility - who is eligible to sep up a traditional IRA?

Most IRA Rules state that anyone wanting to open an IRA account must have earned income. For trational IRA rules, anyone under the age of 70½ with "earned income" is eligible to SET UP a traditional IRA. Note that "passive income" such as those from rents and dividends do not count towards eligibility of opening a traditional individual retirement account. Most retired people do not have earned income and are therefore not eligible to set up a traditional IRA. Under traditional IRA rules, having earned income is very important.

When must I establish a traditional IRA by? When is the deadline for opening a Traditional IRA account?

The traditional IRA rules state that a person must establish the traditional IRA by tax filing due date, no extensions. This traditional IRA rules regarding the opening of traditional IRA account is the same as the Roth IRA rules.

How to set up the Traditional IRA?

Under the traditional IRA rules, to set up a traditional IRA, you need to go to a financial institution such as a brokerage firm or a bank. You will open up an IRA account at the financial institution and put money in (contribute) no more than the IRA Contribution Limit or you will violate the traditional IRA rules and have to pay tax penalty.

For example, under the current traditional IRA rule of 2006, you can contribute no more than $4,000 a year. You don't have to physically go to a bank or financial institution. Many financial institutions offer online IRA accounts opening options.

For more information on Traditional IRA and traditional IRA rules, use the link below.

Click here to read more about Roth IRAs.