A Traditional IRA, Individual Retirement Account, is a retirement product for putting money aside as well as potential tax deductions. Note that all earnings and gains grow tax free until they are distributed from the IRA.

In order to make a contribution to a Traditional IRA Retirement Plan, a person must meet the following criteria:

When contributing for Tax Year 2008 and 2009, the maximum amount to put in a Traditional IRA is $5,000 if the IRA holder is younger than 50 years old. Once he or she reach age 50 or above, Catch-Up Contributions can be made in the amount of $1,000. See the breakdown below.

It is important to note that all Traditional IRA Retirement Plan contributions for a particular tax year must be in the IRA by April 15th of the following year.

To be able to deduct contributions is contingent on the following rules:

1. If the IRA holder does not take part in their employer's plan, all of their contribution is deductible.
2. An IRA owner investing in their employer's plan is subject to deductibility based on their marital status and their adjusted gross income.

   • Unmarried taxpayer in their employer's plan can have full deductibility if they have an adjusted gross income of $53,000. In between $53,000 and $63,000, there is an adjusted amount that one can deduct. An IRA owner can no longer deduct a Traditional contribution after $63,000.
   • Married taxpayers in their employer's plan can have full deductibility if they have an adjusted gross income of $85,000. In between $85,000 and $105,000, there is an adjusted amount that one can deduct. An IRA owner can no longer deduct a Traditional contribution after $105,000 adjusted gross income.
   • Married taxpayers who filing separately have a maximum adjust gross income of $10,000 only.
3. If an IRA holder still contributes but cannot take a tax write off, he or she must fill out Form 8606 when doing their yearly taxes and inform the IRS of the non-deductible contributions.
   

When dealing with Traditional IRA Retirement Plan distributions, remember that all distributions could be taxable and subject to penalties.

1. The following examples show exceptions to any tax consequence or penalties:

   • Transfers and rollovers are exempt as the IRA owner does not take constructive receipt of the funds. This means that the owner cannot deposit the monies in their personal accounts and then return the cash to an IRA product within a set period of time.
   • Return of a portion or all of any non-deductible contributions.
   • Particular contributions being removed or recharacterized.
   • An account that has been closed due to revocation.
2. Any normal distribution to an IRA holder that is 59 years old or older is not subject to the 10% penalty. Remember, these are taxable.
3. A premature distribution is a distribution of IRA assets to an owner who is under 59 years old. These funds and/or assets are subject to taxes and a 10% premature distribution penalty. There are exceptions to this rule. They are:

   • Death of the IRA holder
   • Disability of the IRA holder
   • Substantially Equal Payments/ 72(t)
   • Medical Expenses
   • Unemployment/Medical Insurance
     
   • First Time Home Purchase
     
   • Higher Education Expenses
     
   • Publication 590 will outline these and any other exceptions.
     
4. Withholding on distributions can be 10% of the distribution amount or any percentage or amount the owner discloses on the distribution paperwork. Or, the client may decide to forego any withholdings. This would also be disclosed on the distribution paperwork.
5. Required Minimum Distribution, RMD, is the mandatory distribution a person takes starting the year that they reach 70 years old. It is subject to Income Tax but not penalties.