What is a Tra­di­tional IRA?

Invest­ing in a Tra­di­tional IRA per­sonal sav­ings plan is one way to pro­vide your­self sup­ple­men­tal retire­ment income and reduce your depen­dence on Social Secu­rity ben­e­fits.

Traditional IRA Benefits

Many investors are drawn to the tax ben­e­fits that a Tra­di­tion­al IRA offers. How­ev­er, oth­er ben­e­fits also can make a Tra­di­tion­al IRA a good choice.

  • Tax Defer­ment and Deduc­tion — In addi­tion to defer­ring tax­es on cur­rent invest­ment income or appre­ci­a­tion, you may be able to deduct all or a por­tion of your annu­al con­tri­bu­tion, depend­ing on your adjust­ed gross income (AGI) as fig­ured for your tax fil­ing.
  • Con­tri­bu­tion Oppor­tu­ni­ties — The cur­rent max­i­mum con­tri­bu­tion is $5,500, with an addi­tion­al $1,000 for those age 50 and over. You also may con­tribute for a non-work­ing or min­i­mal­ly work­ing spouse.
  • Rein­vest­ment of Earn­ings — All earn­ings from your Tra­di­tion­al IRA auto­mat­i­cal­ly are rein­vest­ed into your account to max­i­mize your total return.
  • Invest­ment Flex­i­bil­i­ty — We offers a wide vari­ety of mutu­al funds to fit your retire­ment plan­ning needs.
  • Non-Work­ing Employ­ee or Spouse Tax Deduc­tions — An employ­ee or spouse who is not cov­ered by a qual­i­fied retire­ment plan can ful­ly deduct (sub­ject to cer­tain income lim­i­ta­tions) Tra­di­tion­al IRA con­tri­bu­tions.

Traditional IRA Deductions At A Glance

If you are cov­ered by a qual­i­fied retire­ment plan, you may deduct up to the amounts shown below, based on annu­al Adjust­ed Gross Income (AGI):

Year Full Deduc­tion if AGI is Below Reduced Deduc­tion if AGI is Between No Deduc­tion if AGI is at or Above
2015 $98,000 Joint $98,000-$117,999 Joint $118,000 Joint
$61,000 Sin­gle $61,000-$70,999 Sin­gle $71,000 Sin­gle

If the IRA account hold­er is not an active par­tic­i­pant in a retire­ment plan at work, but their spouse is an active plan par­tic­i­pant in their employer’s retire­ment plan, the IRA con­tri­bu­tion may be deductible based on the fol­low­ing adjust­ed gross income lim­its:

Year Full Deduc­tion if AGI is Below Reduced Deduc­tion if AGI is Between No Deduc­tion if AGI is at or Above
2015 $183,000 $183,000-$192,999 $193,000

Substantially Equal Periodic-Payments (SEPP)

A Sub­stan­tial­ly Equal Peri­od­ic-Pay­ment Plan is a plan that allows indi­vid­u­als who have invest­ed in an IRA or anoth­er qual­i­fied retire­ment plan to with­draw funds pri­or to the age of 59½ and avoid ear­ly-with­draw­al penal­ties. Typ­i­cal­ly, an indi­vid­ual who removes assets from a plan pri­or to age 59½ will face tax­es on any income gen­er­at­ed by the fund — inter­est income or cap­i­tal gain — and on pre-tax con­tri­bu­tions, while also being sub­ject to a 10% penal­ty. With this option, the funds are accessed using the SEPP plan which pays the indi­vid­ual annu­al dis­tri­b­u­tions for five years or until he or she turns 59½, whichev­er comes last, and does not sub­ject the indi­vid­ual to the 10% ear­ly-with­draw­al penal­ty.

Under Rev­enue Rul­ing 2002 – 62 the IRS pro­vides three basic meth­ods in which pay­ments will be con­sid­ered to be sub­stan­tial­ly equal peri­od­ic pay­ments. Two of the accept­able meth­ods allow the use of a rea­son­able inter­est rate. The IRS man­dates that “the inter­est rate that may be used is any inter­est rate that is not more than 120 per­cent of the fed­er­al mid-term rate for either of the two months imme­di­ate­ly pre­ced­ing the month in which the dis­tri­b­u­tion begins.” The fol­low­ing fig­ures rep­re­sent 120% of the most recent fed­er­al mid-term rate.

120% of the Fed­er­al Mid-Term Rate
March 1.76%
April 2.04%

For addi­tion­al infor­ma­tion regard­ing a Tra­di­tion­al IRA or a SEPP Plan please give us a call.