What is an IRA?
An IRA, which stands for Individual Retirement Account, is a savings plan that provides income tax advantages to individuals saving money for retirement purposes.
Who Can Set Up a Traditional IRA?
Individuals can make contributions to a traditional IRA if, they (or, if a joint return is filed, their spouse) received taxable compensation during the year, and have not reached age 70½ by December 31st.
What is the deadline for IRA contributions?
Contributions must be made before April 15th of the year following the contribution year. For example, a 2013 IRA contribution can be made anytime between January 1, 2013 and April 15, 2013.
Can individuals contribute to a traditional IRA if they have other retirement plans?
Yes, individuals can contribute to a traditional IRA whether or not they are covered by another retirement plan. However, they may not be able to deduct all of their contributions if they or their spouses are covered by an employer-sponsored retirement plan.
When can funds in an IRA be withdrawn?
IRA funds can be withdrawn without penalty anytime after the individual reaches the age of 59½. If a withdrawal occurs before an individual reaches 59½ the withdrawal amount may be subject to a 10% penalty.
What is the difference between a Roth IRA and a Traditional IRA?
The key difference between the two types of IRAs is when the funds are taxed. Traditional IRA funds are taxed when withdrawn whereas Roth IRA funds are taxed when contributed. Additionally, Roth IRAs allow individuals to make contributions at higher income levels.