The Individual Retirement Account (IRA) was first introduced in 1981 to provide Americans with a tax-favored means of saving for retirement. It is a way for individuals to accumulate wealth on a tax-deferred basis until retirement. The IRA offers flexibility by allowing contributors to determine how much money they want to invest, how often, how they want to invest it, and how much risk they would like to take with their IRA money.
The Traditional IRA has had the following features: (check with www.irs.gov and your tax advisor for current and complete information)
- Maximum contribution of $5,500 a year
- You can own more than one IRA, but your total annual contributions cannot exceed $5,500.
- Tax-deferred growth.
- You can choose from a wide range of IRA investments, including mutual funds or stocks.
- You can deduct your contribution from your tax return as long as:
- You earn less than $59,000 ($95,000 for joint filers).
- You don’t already contribute to your company 401(k) plan.
- Withdrawals made before age 59½ will be subject to a 10% federal tax penalty.
- You can avoid the 10% penalty if early withdrawals are made for:
- College expenses
- Buying a first home
- Medical expenses
- Medical insurance if you’re unemployed
- You cannot make contributions past age 70½.
- You must begin taking mandatory withdrawals at age 70½.
- You cannot borrow from your IRA or use it as collateral for a loan.
- You may, however, use the money during the 60-day rollover period to another qualified account, but you’ll owe income taxes (and possibly the early withdrawal penalty) if you withdraw the money for longer than 60 days.