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Q & A on Traditional IRAs
By Alda Reis
Traditional Individual Retirement Accounts can be difficult to understand as laws and requirements for them can change on a yearly basis. Below are frequently asked questions about traditional IRAs that can help you understand how they work.
Q. What is a traditional IRA?
A. A traditional IRA is a long-term tax-advantaged savings plan. It is designed to leave more after-tax dollars for your retirement. You save money now, but the earnings are not taxed until you begin withdrawing the money in retirement.*
Q. Who is eligible for a traditional IRA?
A. Any income-earning individual, or the spouse of an income-earning individual, can contribute to a traditional IRA plan as long as he or she will not reach 70˝ years of age by the end of the year in which they contribute.
Q. Are there annual contribution limits on a traditional IRA?
A. Contribution limits depend on your age. Those under age 50 can contribute up to $5,000 per year. For those 50 and older, the contribution limit is $6,000, to allow for “catch-up” contributions.
Q. When can I begin withdrawing from my traditional IRA? Is there an age at which I am required to begin withdrawal?
A. Typically, you can begin withdrawing from your traditional IRA after age 59˝, and you will be required to begin receiving minimum distributions from your traditional IRA at age 70˝.
Q. Is there a penalty for early withdrawal from my traditional IRA?
A. In most cases, there is a 10% tax on with¬drawals you make before you reach the age of 59˝. There are, however, instances where withdrawing your funds early will not result in a tax penalty.
Consult a qualified tax advisor with questions about early withdrawals from your IRA.
*Withdrawals in retirement will be taxed as ordinary income. Distributions made before age 59˝ may be subject to a 10% tax penalty, as well.
This information is not intended as tax advice. I strongly recommend you consult a tax professional regarding your own situation.
Alda Reis
BankFive’s Alda Reis specializes in retirement services and products. She has over 20 years of banking experience.
Call 774-888-6100 for more information or visit our website at:
www.bankfive.com
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