A traditional IRA is an individual retirement account (IRA) in the United States. The IRA is held at a custodian institution such as a bank or brokerage, and may be invested in anything that the custodian allows (for instance, a bank may allow certificates of deposit, and a brokerage may allow stocks and mutual funds). Unlike the Roth IRA, the only criterion for being eligible to contribute to a Traditional IRA is sufficient income to make the contribution. However, the best provision of a Traditional IRA — the tax-deductibility of contributions — has strict eligibility requirements based on income, filing status, and availability of other retirement plans (mandated by the Internal Revenue Service). Transactions in the account, including interest, dividends, and capital gains, are not subject to tax while still in the account, but upon withdrawal from the account, withdrawals are subject to federal income tax (see below for details). This is in contrast to a Roth IRA, in which contributions are never tax-deductible, but qualified withdrawals are tax free. The traditional IRA also has more restrictions on withdrawals than a Roth IRA. With both types of IRA, transactions inside the account (including capital gains, dividends, and interest) incur no tax liability. Here is a 401(k) IRA matrix that compares various types of IRAs with various types of 401(k)s.
Contents [hide]
1 Advantages
2 Disadvantages
3 Income limits
4 Converting a Traditional IRA to a Roth IRA
5 Transfers vs. Rollovers
5.1 "Borrowing Money" from an IRA
6 External links
7 Sources
Traditional IRA contributions are limited as follows:
Year Age 49 and Below Age 50 and Above
2005 $4,000 $4,500
2006–2007 $4,000 $5,000
2008 $5,000 $ ...