Traditional IRA
Last Updated October 7, 2011
Definition
- An individual retirement account, which can be established at a bank, credit union, brokerage firm, savings&loan, or other financial institution that satisfies the requirements established under the tax code IRC § 408(n)
- An individual retirement annuity-contract issued by an insurance company.
An individual is eligible to take a tax deduction for contributions made to his/her traditional IRA, if he/she is not an active participant, nor married to someone who is an active participant.
If an individual is an active participant and/or married to someone who is an active participant, his/her eligibility to take a tax deduction for the traditional IRA contribution is determined by his/her modified adjusted gross income (MAGI) and tax filing status.
An individual who is eligible to claim a tax deduction for his/her traditional IRA contribution may choose to treat the contribution as nondeductible, if he/she so wishes to do. IRS Form 8606 is required to be filed to report any nondeductible contributions made to a traditional IRA. This helps the IRA owner and the IRS keep track of these amounts, so that they are not taxed when distributed from the IRA.
Referring Cite
IRC § 408 (a), IRS Publication 590
Additional Helpful Information
Individuals may contribute up to 100% of their taxable compensation/income up to the dollar limit that is in effect for the year to their traditional and/or Roth IRAs. Individuals who reach age 50 by the end of the year may contribute additional amounts referred to as ‘Catch-up’ contributions.
The dollar limits are as follows:
|
Year |
IRA contribution limit |
Catch-up contribution limit |
|
2002 |
$3,000 |
$500 |
|
2003 |
$3,000 |
$500 |
|
2004 |
$3,000 |
$500 |
|
2005 |
$4,000 |
$500 |
|
2006 |
$4,000 |
$1,000 |
|
2007 |
$4,000 |
$1,000 |
|
2008 |
$5,000 |
$1,000 |
|
2009 |
$5,000 |
$1,000 |
| 2010 | $5,000 | $1,000 |
| 2011 | $5,000 | $1,000 |
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