IRA Rules

Archive for the ‘Traditional IRA Rules’ Category

As previously mentioned elsewhere on this blog, traditional IRA rules are different from Roth IRA rules in some aspects and similar to Roth IRA rules and other IRA rules in others. This is not to say that traditional IRA rules are better than Roth IRA rules, stretch IRA rules, or simple IRA rules. Traditional IRA rules and other IRA rules (such as Roth IRA rules, respectively) are what make each individual retirement account different. Traditional Ira Rules distinguishes traditional individual retirement account from a Roth individual retirement account, as well as other retirement accounts. Let’s examine more traditional Ira Rules that define traditional individual retirement accounts.

Traditional IRA Contributions – how much money can I put into Traditional IRA?

Under the traditional Ira Rules, you cannot keep contributing or putting money into your Traditional IRA limitlessly. There is a contribution for what you can contribute into your Traditional IRA account each year. There are different types of Traditional IRA contributions that you should be aware of when studying traditional Ira Rules.

Total Contributions – of Traditional IRA, Roth IRA, and all other Individual retirement accounts

The total contribution that you can put into all of your IRA accounts combined is

• 100% of compensation or $4,000 (for 2005 through 2007) per individual, whichever is less.
• $8,000 (increasing to $8,000 for 2005 through 2007) contribution for married filing jointly. Separate IRA accounts required; neither IRA can exceed $3,000 annually.

The $4,000/$8,000 (for 2005 through 2007) limits apply in the aggregate to both Traditional IRA and Roth IRA. Both traditional Ira Rules and Roth IRA rules concur that you can contribute as much as either $4,000 or $8,000 to all your IRA Accounts, traditional or Roth. The total contribution to your individual retirement accounts cannot exceed that limit.

Catch Up Contributions – of Traditional IRA, Roth IRA, and all other Individual retirement accounts

Under the New Ira Rules (traditional Ira Rules, Roth IRA rules, and other Ira Rules) individuals age 50 or over may make additional catch-up IRA contributions. The maximum contribution limit is increased by $1,000 for year 2006 and thereafter. The catch up IRA contribution limits used to be $500 a year until 2005.

Deductible Contribution – traditional Ira Rules

An individual who is not an active participant in an employer plan can make fully deductible contributions under traditional Ira Rules. The deduction is phased out for active participants whose AGIs exceed certain amounts.

Deductible for Non-Active Plan Participant Spouse of Traditional IRA owner

Traditional IRA rules allow an individual who does not participate in an employer-sponsored retirement plan but whose spouse does participate to make deductible traditional IRA contributions. Under the current traditional IRA rules, however, the deduction is phased out at AGIs from $150,000 to $160,000.

Traditional IRA Rules of Non-Deductible Contributions

Many people think that all contributions to traditional individual retirement accounts are tax deductible. This is not the case. Some traditional IRA contributions may be non deductible if the traditional IRA owner has income exceeding a certain limits under traditional IRA rules and the contribution may also be non deductible if the owner participates in a qualified employer retirement plan.

What is the contribution deadline under traditional IRA rules?

Under the traditional IRA rules, the deadline for establishing and contributing into a traditional IRA account is the tax filing due date. No extensions.

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.