A traditional IRA is similar to Roth IRA, except the tax benefits. The key advantage of traditional individual retirement accounts is that they enable a person to make contributions of annual tax deductions to their retirement fund. Unlike the Roth IRA, the traditional IRA does not enable for tax-free earnings.
Eligibility of traditional IRA
Here are some of the rules for becoming eligible to traditional individual retirement accounts.
All taxpayers of the United States who are not active participants in the employer-sponsored plan have the eligibility to make contributions to traditional IRA plan.
The maximum contribution of every person is $5,500 annually. Married couples are allowed to contribute $10,000. If you have attained an age of 50 years, you are allowed to contribute $6,000 annually, owing to catch-up provision. There are tax benefits up to 100% in the contributions.
These individual retirement accounts are recognized to be the best options for saving money and procuring tax deduction at the same time. In case you invest an amount of $5,500 into the traditional IRA annually, it is possible for you to claim a deduction of $5,000. This tax deduction will reduce the adjusted gross income, which will eventually decrease the tax liability. You do not require paying taxes on the contributions if you do not withdraw any fund before the age of 70 and a half years.
- No income limits on participation
- Every individual is allowed to enroll in traditional IRA. However, everyone is not eligible to procure the benefits of a tax deduction.
The contributions made to these traditional individual retirement accounts are recognized to be completely taxable till the employer does not procure qualified retirement plan. In case you are not covered by the plan of the employer, you are eligible to procure tax deduction. This, however, depends on the filing status and whether you fall within specific income brackets.