The ABCs of Traditional IRAs

IRA stands for Individual Retirement Account. Because of the many different tax codes concerning IRAs, it can be confusing. IRAs were established in 1975 and employees without a retirement plan could put $2000 into a retirement fund.


The original IRA, sometimes called a regular IRA is referred to as a “Traditional IRA”


There are 2 advantages to a Traditional IRA


*You may be able to deduct some or all of your contributions to a traditional IRA
*Amounts in your IRA are not taxes until you take the money out.


You can set up a traditional IRA at any time. You can set up different IRAs with either a bank, a mutual fund, or life insurance company. You can also set up a Traditional IRA through your stockbroker.


All IRAs must meet the Internal Revenue Code requirements.


Each year the maximum amount that you can contribute to an IRA changes. (This is one of the many laws that Congress votes on and changes each year)


Individuals who are over a certain age (50+) can contribute more then individual who are younger.


Contributions to your IRA cannot be made to a Traditional IRA after you reach the age of 70 ½, or for any later years. (You can contributed in a ROTH IRA up until any age)


Rollover


No, we are not talking to the dog.....


You can withdraw, TAX FREE, all or part of your Traditional IRA if you reinvest it within 60 days in the same or another Traditional IRA. This is called a “rollover” - rolling over money from

There are restrictions as to when you can make a tax-free rollover from that same IRA account.


Penalties


Generally, if you are under the age of 59 ½, you must pay a 10% additional tax on any distributions from your Traditional IRAs. Distributions before you are 59 ½ are called early distributions.


Exceptions


You may not have to pay a 10% penalty if one of the following situations apply:


* you have high medical expenses
* the distributions are not more then your medical insurance
* you are disabled
* you are the beneficiary of a decreased IRA owner
* you are receiving distributions in the form of an annuity
* the distributions are not more than your qualified higher education expenses
* you use the distributions to buy, build or rebuild a first home
* the distribution is due to an IRS levy of the qualified IRA plan.
Distributions from a Traditional IRA are taxable in the year that you receive them. (There are exceptions to this rule)


Prohibited Transactions


Improper use of your IRA could result in a 15% tax on the amount of the prohibited transaction.
Prohibited transactions would include transactions such as:


*Borrowing money from your Traditional IRA
*Selling property to your Traditional IRA
*Receiving unreasonable compensation for managing your Traditional IRA
*Using your Traditional IRA as a security for a loan
*Buying property for personal use with your Traditional IRA*



For more information visit irs.gov For affordable help with your past due returns, visit http://taxeswilltravel.com/