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Traditional IRA

The IRA was created to encourage retirement savings for working individuals.

Eligibility

• All individuals under age 70 1/2 with earned income may contribute to an IRA. A nonworking spouse is eligible to contribute to an IRA as long as the couple’s contributions do not exceed their combined earned income.

Contributions

• The lesser of 100% of earned income or $5,500 in 2016.

• A nonworking spouse is eligible to contribute $5,500 to an IRA as long as the couple’s contributions do not exceed their combined earned income.

• Catch-up contribution for individuals age 50 and over is $1,000.

• Contribution deadline is individual’s tax return due date (excluding extensions).

Deductibility

 • IRA contributions are fully deductible unless the individual is a participant in an employer-sponsored retirement plan. If covered by an employer-sponsored plan, the deductibility of an IRA contribution will depend on the adjusted gross income (AGI) of the IRA owner and, in the case of married couples, their spouse.

Active participants in an employer-sponsored plan can make a deductible IRA contribution if their income is below the following levels for 2016:

Joint Returns (AGI) Individual Returns (AGI)
$98,000 $118,000 $61,000 – $71,000

• Active participant status is considered independent of a spouse. If one spouse is an active participant in an employer-sponsored retirement plan, the spouse who is not may make a fully deductible IRA contribution if the couple’s modified AGI is less than $194,000.

Distributions

•Distributions are taken at the owner’s discretion.

• All non-taxed dollars will be taxed as ordinary income when withdrawn from an IRA.

• Distributions taken before age 59 1/2 have a 10% penalty except in the event of death, disability, return of non-deductible contributions, substantially equal periodic payments, medical expenses (certain conditions prevail), first time home buyers, and qualified educational expenses.

• At age 70 1/2, distributions become mandatory and must be taken over the life expectancy of the owner.

• Eligible rollover distributions from IRAs may be rolled into other IRAs, Qualified Plans, 403(b)s, and 457 Plans. "After-tax" distributions from IRAs are not eligible to roll to Qualified Plans, 403(b)s, or 457 plans.

Before making decisions about Individual Retirement Accounts, investors should consult their tax advisor. Century Securities and Stifel do not offer tax advice.

 
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