Deposits

• Individuals who are younger than 50 years old by December 31 of the taxable year may contribute a maximum amount of $5,000 to a traditional IRA. However, if the individual made less than $5,000, then the contribution is limited to the amount of taxable compensation earned for the year. Individuals older than 50 years old may invest an additional $1,000 into a traditional IRA, as their retirement date is closer. Those affected by a company bankruptcy of a qualified retirement plan may make additional contributions. If you are contributing to a qualified retirement plan at work, or you are married, then different dollar limits may apply. Note that the IRS periodically changes contribution limits. Follow the link provided in the Resources section below to confirm current deposit limits and special circumstance limits if they apply to your situation.
  
  

Earnings and Tax Benefits

• IRAs earn higher rates of interest than regular savings accounts from financial institutions because they cannot be withdrawn without penalty until the individual reaches 59 years and six months of age. Individuals may deduct the qualifying deposits made to a traditional IRA from their gross income for income tax purposes. Because the dollar amount reduces the AGI (adjusted gross income) it also reduces the amount of income tax the individual will pay for that year. However, be aware that if you make a withdrawal from your traditional IRA before reaching the designated age, or you deposit more than you are eligible to deposit, you may pay a tax penalty.
  
  

Withdrawals

• An individual my begin withdrawing money from a traditional IRA without penalty when the age of 59 years and six months is reached. However, at 70 years and six months, distributions are mandatory from your traditional IRA beginning April 1 of the following year. Fines and penalties are assessed to individuals not taking mandatory distributions. Once the designated age is reached, any money withdrawn from a traditional IRA is treated as ordinary income for tax purposes. Because the individual avoided paying income tax on the money the year it was contributed to the traditional IRA, income tax is paid the year the money is withdrawn.