Rules for a Regular IRA

By M.J. Kelly

  • Overview

    The regular IRA, also known as a traditional IRA, is an individual retirement account that a taxpayer may open to help fund his retirement. The traditional IRA has its own set of rules and regulations and differs from a 401k and a Roth IRA. Learn how the regular IRA can benefit you by understanding eligibility requirements, contribution limits and distribution regulations.
  • Identification

    If you are not covered by a retirement plan at work, you are single, and you have earned income, you may open a regular IRA and make fully tax deductible contributions to your account. If you are married filing jointly, and neither you nor your spouse participate in retirement plans at work, you may fully deduct contributions to your traditional IRA regardless of your income. Your contributions and their earnings will grow tax deferred until you take them out.
  • Types

    If you are single and you participate in a retirement plan at work, your regular IRA contributions are not tax deductible if your adjusted gross income is $65,000 per year or more. If you are married filing jointly, and you participate in a plan at work, you may not make tax-deductible IRA contributions once your income exceeds $109,000. If you are not a retirement plan participant at work, but your spouse is, you cannot deduct regular IRA contributions unless your combined income is under $176,000.

  • Features

    You may contribute up to $5,000 per year into your regular IRA if you are 49 years of age or younger. The IRS allows you to add an additional $1,000 per year if you are 50 years of age or older. You may only contribute an amount up to or equal to your total earned income in a given year.
  • Function

    When you begin to withdraw funds from a tax-deductible IRA in retirement, you will pay income tax on those withdrawals based on your individual tax bracket. If you withdraw funds prematurely, before you reach 59½ years old, you may be subject to a penalty of 10 percent of the withdrawal amount. You must begin to take minimum distributions once you reach 70½ years of age.
  • Considerations

    You have until April 15 of next year to make your regular IRA contributions for this year. If your contributions to your regular IRA are tax-deductible, your tax liability for a given year may be reduced. If you expect to be in a high tax bracket when you retire, consider opening a Roth IRA instead of a regular IRA because your qualified withdrawals will be tax-free.
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