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Types Of IRAs

The Traditional IRA

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A traditional IRA is also known as an "original," "ordinary," or "regular" IRA. It is any IRA that is not a Roth IRA, SEP or SIMPLE, IRA, or a Coverdell (education) IRA (each of which are discussed below.)

In a traditional IRA:

  • Your contributions are usually tax-deductible.
  • Earnings and growth on the assets in the account are not taxed while in the IRA.
  • Distributions, including the earnings and growth on the assets in the account, are taxed when they are distributed.

The idea behind the IRA is that most people have less income during retirement than during their working years, so it's expected that you will be in a lower tax-bracket when distributions are made. Therefore, you will pay less taxes on the money than you would if you pay the taxes as the money is earned.

As an example, if you put $2,000 into an IRA bank savings account this year, with a traditional IRA account you can subtract the $2,000 from your gross income before figuring your tax, provided that you are eligible to deduct contributions. You do not pay tax on the interest as it is earned. When you withdraw the money, you pay an income tax on both the money you put in originally and on any gains and interest.


The amount you can contribute to an IRA each year depends on several factors, including your filing status and amount of income. To learn about your situation, see IRS Publication 590-A. offsite link


Generally, you can deduct the full amount of your allowed contribution, unless you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made.

If you or your spouse were covered by an employer plan, your deduction may be reduced or eliminated, depending on your income and your filing status (whether you file individually or a joint tax return.)

If you have question about whether there was coverage by an employer retirement plan, check your W-2 form - the annual statement that you receive from your employer every year that lists your earnings and taxes withheld.  If you are covered by your employer's retirement plan, the "Pension Plan" box (in Box 15) should have a mark in it. 

If you are not certain if you were covered or not, ask the human resources department of your employer. If there is no separate department or person in charge, ask your supervisor.

Keep in mind that even if you cannot deduct the full amount you are allowed to contribute, you can make the balance as a nondeductible contribution, including, if otherwise allowed, a contribution to a Roth IRA.  While you cannot deduct the amount of the excess contribution, you can defer taxation on the income from the amount you contributed.


For more information on Traditional IRAs, see IRS Publication 590 at: offsite link offsite link

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