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.