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February 15, 2009

Traditional IRA



  • An individual retirement account, which can be established at a bank, credit union, brokerage firm, savings & loan, or other financial institution that satisfies the requirements established under the tax code IRC § 408(n)
  • An individual retirement annuity-contract issued by an insurance company.

An individual is eligible to take a tax deduction for contributions made to his/her traditional IRA, if he/she is not an active participant, nor married to someone who is an active participant.

If an individual is an active participant and/or married to someone who is an active participant, his/her eligibility to take a tax deduction for the traditional IRA contribution is determined by his/her modified adjusted gross income (MAGI) and tax filing status. The MAGI limits can be found here under the definition of IRA

An individual who is eligible to claim a tax deduction for his/her traditional IRA contribution may choose to treat the contribution as nondeductible, if he/she so wishes to do.  IRS Form 8606 is required to be filed to report any nondeductible contributions made to a traditional IRA. This helps the IRA owner and the IRS keep track of these amounts, so that they are not taxed when distributed from the IRA.

Referring Cite

IRC § 408 (a), IRS Publication 590

Additional Helpful Information

Individuals may contribute up to 100% of their taxable compensation/income up to the dollar limit that is in effect for the year to their traditional and/or Roth IRAs. Individuals who reach age 50 by the end of the year may contribute additional amounts referred to as ‘Catch-up’ contributions.

    • An individual can split the annual limit between a traditional and a Roth IRA, or contribute the entire amount to either. However, MAGI limitations apply to Roth IRA contributions.
    • IRA contributions must be made in cash

Keep Learning

Applicable RMD Age

Applicable RMD Age The first year for which an IRA owner or plan participant must begin to take RMDs from their tax-deferred retirement account. RMDs

SIMPLE 401(k) Plan

Definition A SIMPLE 401(k) plan is a 401(k) plan established by a small business for it’s employees. Earnings accrue on a tax-deferred basis and distributions

Required Minimum Distribution (RMD)

Definition The minimum amount that must be withdrawn from retirement accounts, including qualified plans, 403(b) accounts, 457(b) accounts or IRAs, each year.  For retirement account

Required beginning date (RBD)

Definition The date by which a retirement account owner must begin distributing required minimum distribution (RMD) amounts from a Traditional,  SEP or SIMPLE IRA, a

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IRA Rules