Are you looking to save money in preparation for your retirement? In this case, it helps to know some options ahead of you, so you can start things right and reap the compounding effect of your investments. Read along and discover one of the many options available for your retirement savings account.
What is IRA?
IRAs or Individual Retirement Accounts provide employees with an opportunity to save for their retirement through their pre-tax salary placed into this account. You may choose to direct your funds to an investment vehicle that can grow with taxed dividend income and zero capital gains, as your investment is tax-deferred. There are also annual limits for each contributions made.
In the case of a traditional IRA, a taxpayer may choose to direct 100 percent of their compensation to a particular maximum amount. All contributions made to this type of IRA are tax-deductible, although this still depends on the tax-filiing status and income of each taxpayer with this account. Other factors are also take into consideration when it comes to the tax-deductible feature of a traditional IRA.
Facts about Traditional IRA
Individuals who may be able to qualify for a traditional IRA are those who have existing income from their employment within the year. They should also be 69 years old and below, as the cut off age of this IRA type is 70 1/2. If you are looking to set up a traditional IRA account, yet you have a current employer-sponsored retirement plan, 401(k) or pension, you lose your eligibility to contribute to traditional (deductible) IRA. This is the case when your income exceeds specified amount.
For the year 2015, the allowable amount that can be contributed to a traditional IRA was $5,500. However, those who are 50 years old and above can contribute as much as $6,500. Yet, it is not possible to contribute an amount higher that your taxable compensation for the given year. In case you meet the requirements for eligibility to obtain a traditional deductible IRA, it is possible for your un-employed spouse to make contributions. Keep in mind that there is a maximum amount for the contribution, which is below your earnings. The maximum contribution to be made is $12,000 for those who are 50 years old and above.
As for the deadlines for contributions, there are specific dates to remember. Generally, the deadlines are set in the middle or the 15th of April, for the past tax year. For instance, April 15, 2016 is the deadline for contributions made for the year 2015.
There are also policies set in terms of withdrawing money from your traditional IRA account. Basically, you may choose to withdraw funds any time you wish. However, if you are below 59 1/2 years of age, you are subject to a 10-percent tax as penalty. Furthermore, all distributions must begin by the 1st of April of the year that follows the year when you turn 70 1/2.
By being familiar with regulations and policies regarding traditional IRAs, you can make a decision to go for this retirement savings plan or choose another option that goes with your situation.