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The following page gives the IRS definition of a Traditional IRA and also defines who is eligible to contribute to a Traditional IRA. The IRS determines eligibility based on taxable compensation, income, age, and participation in other retirement plans.
The traditional IRA is the original IRA sometimes referred to as the ordinary or regular IRA. A traditional IRA is any IRA that is not a Roth IRA, a SIMPLE IRA, or an education IRA. Here are some of the advantages of a traditional IRA:
Who Can Set Up a Traditional IRA?
You, your non-working spouse, and even your child can set up and make contributions to a traditional IRA if you, your spouse-if you file a joint return, or child received taxable compensation during the year and you were not age 70 1/2 by the end of the year. For any year in which you do not work, contributions cannot be made to your IRA for that year unless you receive alimony or file a joint return with a spouse who has compensations.
You can have a traditional IRA whether or not you are an active participant in (covered by) any other retirement plan. However, you may not be able to deduct all of the contributions if you or your spouse are covered by an employer retirement plan. Click here to see if the IRS considers you covered by an employer's retirement plan. If you are considered covered by a retirement plan at work, a roth IRA may be a better option than a traditional IRA if you qualify. Click here to find out more information on Roth IRAs.
When and How Can a Traditional IRA Be Set Up?
You can set up a traditional IRA at any time. However, the time for making contributions for any year is limited.
You can set up different kinds of IRAs with a variety of organizations. You can set up an IRA at a bank or other financial institution or with a mutual fund or life insurance company. You can also set up an IRA through a stockbroker or financial advisor. All IRAs must meet Internal Revenue Code requirements.
Kinds of traditional IRAs. Your traditional IRA can be an individual retirement account or annuity. It can be part of either a simplified employee pension (SEP) or a part of an employer or employee association trust account.
Individual Retirement Account:
An individual retirement account is trust or custodial account set up in the United States for the exclusive benefit of you or your beneficiaries. The account is created by a written document. The document must show that the account meets specific Internal Revenue Code requirements.
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