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Traditional IRAs

Traditional IRAs may be a good choice if you are seeking a tax deduction, your income is too high to be eligible for a Roth IRA, or you believe you will be in a lower tax bracket in retirement. A Traditional IRA is your opportunity to make tax-deferred and possibly tax-deductible contributions to your retirement savings.

Benefits:

The benefits of a Traditional IRA include:

  • Tax-deferred growth potential
  • The ability to deduct your contributions (if you participate in a plan at work, your eligibility is based on your income)
  • Accepts rollovers from employer-based plans (401(k), 403(b), or 457 governmental plans)
  • Accepts transfers of savings from Traditional IRAs

Things to consider:

  • Withdrawals are taxable and included with your yearly income
  • 10% IRS penalty on distributions taken before age 59 1/2 (some exceptions apply)
  • Required Minimum Distributions (RMDs) at age 70 1/2

Learn more about IRAs

If you’re not sure whether you want a Traditional IRA or Roth IRA, we can help you compare IRAs.  We also have answers to frequently asked questions about IRAs.

Individuals who have earned income and their spouses, if married filing jointly, can contribute to a Traditional IRA up until the year they turn 70 1/2. With a Traditional IRA, you may be able to deduct your contributions on your taxes, which can help lower your tax bill. Your eligibility to deduct is based on your Modified Adjusted Gross Income (MAGI) and whether you or your spouse is covered1 by an employer-sponsored retirement plan (401(k), 403(b), Government 457, SEP, and SIMPLE IRA).

If you are under age 50, you can contribute up to $5,500 to your IRA in 2016 and 2017.  If you're age 50 or over, within a particular tax year, you can make an additional catch-up contribution of $1,000.

The IRS provides guidelines about claiming a tax deduction for your Traditional IRA contributions. Here is a summary of guidelines and maximum annual contributions.  The tables below can help you determine whether your IRA contribution is deductible.

Even if your contribution is not deductible, contributing to a Traditional IRA is still a great way to grow retirement savings tax-deferred.

During the 2016 tax year if you and, if married, your spouse are not covered by an employer sponsored plan1:

  • Full deduction regardless of MAGI

During the 2016 tax year and you are covered by an employer sponsored plan1:

  • Fully deductible if MAGI is less than $61,000 (single) or $98,000 (joint) 
  • Partially deductible if MAGI is between $61,000 and $71,000 (single) or $98,000 and $118,000 (joint) 
  • No deduction if MAGI is over $71,000 (single) or $118,000 (joint)

During the 2016 tax year, you are covered1 by an employer sponsored plan and your spouse isn't:

  • Fully deductible if MAGI is less than $184,000 (joint)
  • Partially deductible if MAGI is between $184,000 and $194,000 (joint)
  • No deduction if MAGI is over $194,000

During the 2017 tax year you and, if married, your spouse are not covered by an employer sponsored plan1:

  • Full deduction regardless of MAGI

During the 2017 tax year and you are covered by an employer sponsored plan1:

  • Fully deductible if MAGI is less than $62,000 (single) or $99,000 (joint) 
  • Partially deductible if MAGI is between $62,000 and $72,000 (single) or $99,000 and $119,000 (joint) 
  • No deduction if MAGI is over $72,000 (single) or $119,000 (joint)

During the 2017 tax year, you are covered1 by an employer sponsored plan and your spouse isn't:

  • Fully deductible if MAGI is less than $186,000 (joint)
  • Partially deductible if MAGI is between $186,000 and $196,000 (joint) 
  • No deduction if MAGI is over $196,000

1The “Retirement Plan” box in Box 13 of your W-2 tax form should be checked if you were covered by a retirement plan at work.

Traditional IRAs offer tax-deferred growth potential. You pay no taxes on any investment earnings until you withdraw or “distribute” the money from your account, presumably in retirement. Additionally, depending on your income, your contribution may be tax deductible.

If you make any withdrawals before age 59 1/2, you may owe a 10% IRS tax penalty. There are a few exceptions which allow you to avoid the 10% penalty:

  • Death
  • Disability
  • Eligible medical expenses
  • Certain unemployed individuals’ health insurance premiums
  • Qualified first-time homebuyer (lifetime maximum $10,000)
  • Qualified higher education expenses
  • Substantially Equal Periodic Payments (SEPP)
  • Roth conversion
  • Qualified reservist distribution, or
  • IRS levy

These exceptions allow you to take money out without the 10% IRS tax penalty. Keep in mind you will generally owe ordinary income tax  on any amount taken from your Traditional IRA.

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Learn more about IRAs

If you’re not sure whether you want a Traditional IRA or Roth IRA, we can help you compare. And for a general look at where you are with retirement, try out our Retirement Tools & Calculators.

What is Modified Adjusted Gross Income?

Your Modified Adjusted Gross Income (MAGI) is found by taking your Adjusted Gross Income (AGI) and adding back certain items, such as foreign income, student-loan deductions, or other items determined by the IRS. This amount is used to determine your deductibility for Traditional IRA or eligibility for Roth IRA contributions.