Traditional IRAs are the most commonly known retirement accounts.

Traditional IRAs and Roth IRAs are the two major kinds of individual retirement accounts and the prime difference between the two is the time at which they are taxed. Contribution and distribution rules also differ and are key elements to consider when choosing between these retirement plans.

Traditional individual retirement accounts are the most common plans and allow pre-tax savings for most investors. By self-directing your traditional IRA, you are able to choose the types of investments you hold within your plan.

You are able to fund a traditional IRA by rolling over funds from another IRA, employer plan or pension plan. You may also make allowed annual contributions on a pre-tax basis.

Contribution Eligibility for Traditional IRAs

Individuals under 70½ with earned income (as defined by the IRS) are able to make contributions. Deductibility is based on annual income and eligibility or participation in an employer-based plan.

The definition of earned income as determined by the IRS can be found by reading IRS Publication 590.

Traditional IRA $5,500 per year $6,000 per year
Catch-up Contribution $1000 catch-up contribution if 50 and older $1000 catch-up contribution if 50 and older

Distributions from Traditional IRAs

There is a 10 percent early-withdrawal penalty if you are under the age 59 ½ unless:

  • You inherited the IRA.
  • You are disabled.
  • You are paying education expenses for you or your dependents.
  • You are a first-time home buyer.
  • You are paying medical expenses exceeding 7.5 percent of adjusted gross income.
  • You are unemployed and used to pay health insurance.
  • You are taxed at ordinary income levels for all distributions from any tax-deferred IRA (traditional, SEP, SIMPLE) and are required to take RMDs (required minimum distributions) once you reach the age of 70 ½ years.  If you take distributions before you reach the age of 59 ½ you are required to pay a 10 percent penalty, along with tax due.

You should consider self-directing a traditional IRA if:

  • You are eligible to deduct your contribution now and you anticipate your tax rate at retirement to be lower than your current tax rate.
  • You need a tax deduction to lower your current tax bill. (Some investors still contribute to an IRA account even without the tax deduction.)
  • You are not eligible to make a Roth IRA contribution due to income limits.
  • You are looking for a larger choice of investment options for your funds.

Advanta IRA makes self-directing simple for you.

Let’s get started on your investment opportunities today!

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