Traditional IRA Tips

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Can I take a penalty free distribution from my Traditional IRA to use for the purchase of a home?

Your Traditional IRA and Buying a Home

If you are going to use your Traditional IRA to purchase a home, you can take a penalty free distribution. There are rules and limits that apply, however, you can use this distribution to build or repair your first home, a home for your spouse, grandchildren, or for yours and your spouse's parents. Check with your financial planner or financial institution before withdrawing money from your IRA.

What are the advantages of a Traditional IRA?

The Advantages of a Traditional IRA

One of the major benefits of a Traditional IRA is that your yearly contributions are usually tax deductible. Money invested in a traditional IRA is tax deferred and taxed only when money is withdrawn. If you withdraw money before the age of 59 1/2, you are subject to taxes and withdrawal fees. Consider your tax rate at retirement and if it will be lower than it is now, and you aren't going to withdraw money, a Traditional IRA is a great option. This is a wonderful savings to those who are planning and preparing for their retirement.

Can I fund my non-working spouse's Traditional IRA?

Your Traditional IRA and Your Spouse

Your spouse may establish a Traditional IRA for a non-working spouse. However, there are some guidelines to follow. You must be married and have filed a joint income tax return. This is a wonderful way for a spouse to create a retirement nest egg for a non-working spouse. There are some contribution limitations within a year, so make sure that you work with a certified Financial Planner when setting up a Traditional IRA for your spouse.

Can I withdraw from my Traditional IRA if I have a disability?

Your Traditional IRA and Disabilities

If you have a Traditional IRA and become disabled, you can withdraw money and it won't be subject to early penalty fees. You will have to prove your disability. To qualify, you must be under 59 1/2 years old, and you must have a physician's statement that you have a disabling condition that could lead to death.

How can I determine if my Traditional IRA contribution is tax deductible?

Your Traditional IRA and Tax Deductions

There is a certain list of criteria that will determine whether or not you can deduct your Traditional IRA contribution. These include:

Your Tax Filing Status

Your Modified Adjusted Gross Income

Your Active Participant Status

By working with your accountant, Financial Planner, and your employer you will be able to determine how much of a tax deduction you qualify for.

How can I fund my Traditional IRA?

Funding Your Traditional IRA

A Traditional IRA is a wonderful way to fund your retirement nest egg. Unlike employer based plans, a Traditional IRA allows for individuals to contribute to their own account and receive a tax deduction for making the contribution. One important fact to note however, is that you are unable to contribute to your Traditional IRA account after you turn 70 1/2 years old. Spouses may also contribute to your Traditional IRA account, and a spouse may start a Traditional IRA for a non-working spouse. You can also Rollover other assets into your Traditional IRA including employee based plans, such as the 401k.

Will my beneficiaries have to pay penalty fees if I die before receiving my Traditional IRA?

Your Traditional IRA and Beneficiaries

If you have a Traditional IRA and pass away before the age of 59 1/2 years old, your designated IRA beneficiaries will receive payments and they won't be subjected to penalty fees.
As the beneficiary of an IRA, you can transfer the inherited IRA to an Inherited IRA Beneficiary Distribution Account, which can be set up by your financial planner or estate planner. Or, you can disclaim all or part of your portion of the inherited money.

How will I know if I have to pay taxes for my Traditional IRA Rollover?

Traditional IRA and Tax Form 8606

If you convert your Traditional IRA to a Roth IRA, you may still be subject to pay income tax and part of the contribution. To make sure that you properly file the right paperwork, you should fill out Tax Form 8606. You should also seek counsel from your Financial Planner and personal accountant if you need more help.

Is my Traditional IRA subject to early distribution penalty fees?

Early Distribution Penalties and Your Traditional IRA

Unlike a Qualified Roth IRA that is tax and penalty free, a Traditional IRA is subject to a 10% early distribution penalty. If you are interested in rolling over your Traditional IRA to your Roth IRA, it's best to see the advice of a financial planner first. You should also check with the financial institution that holds your IRA to ensure your transaction is order and you aren't subject to any penalty fees.

Will I have to take Required Minimum Deductions with a Traditional IRA?

Required Minimum Distributions and Your Traditional IRA

Traditional IRAs don't sit around forever earning interest. At the time you reach 70 1/2 years old you must take what is called, “Required Minimum Deductions”. The Required Minimum Deductions will be calculated by the trustee of the IRA. There is also a penalty fee if the Required Minimum Deduction is not administered by the due date.

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