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Traditional IRAs

Traditional IRAs may be a good choice if you are seeking a possible tax deduction, your income is too high to be eligible for a Roth IRA, or you believe you will be in a lower tax bracket in retirement. A Traditional IRA is your opportunity to make tax-deferred and possibly tax-deductible contributions to your retirement savings.

Benefits:

The benefits of a Traditional IRA include:

  • Tax-deferred growth potential
  • The ability to deduct your contributions (if you participate in a plan at work, your eligibility is based on your income)
  • Accepts eligible rollovers from qualified employer sponsored retirement plans (QRPs) such as 401(k), 403(b), or 457(b) governmental plans
  • Accepts transfers from Traditional, SEP and SIMPLE IRAs

Things to consider:

  • Distributions are generally taxable and included with your yearly income
  • 10% additional tax on distributions taken before age 59 1/2 (exceptions apply)
  • Required Minimum Distributions (RMDs)

Learn more about IRAs

If you’re not sure whether you want a Traditional IRA or Roth IRA, we can help you compare IRAs.  We also have answers to frequently asked questions about IRAs.

Individuals who have earned income and their spouses, if filing jointly, can contribute to a Traditional IRA. With a Traditional IRA, you may be able to deduct your contributions on your taxes, which can help lower your tax bill. Your eligibility to deduct is based on your Modified Adjusted Gross Income (MAGI) and whether you or your spouse is covered1 by a workplace retirement plan (WRP) such as 401(k), 403(b), SEP, or SIMPLE IRA.

The IRS provides guidelines about claiming a tax deduction for your Traditional IRA contributions. Here is a summary of guidelines and maximum annual contributions. The tables below can help you determine whether your IRA contribution is deductible.

Eligible individuals under age 50 can contribute up to $7,000 for 2024. Eligible individuals age 50 or older, within a particular tax year, can make an additional catch-up contribution of $1,000.  The total contribution to all of your Traditional and Roth IRAs cannot be more than the annual maximum for your age or 100% of earned income, whichever is less.

Even if your contribution is not deductible, contributing to a Traditional IRA is still a great way to take advantage of tax-deferred growth potential.

During the 2024 tax year you and, if married, your spouse are not covered by a WRP:

  • Full deduction regardless of MAGI

During the 2024 tax year you and, if married, your spouse are covered by a WRP:

  • Fully deductible if MAGI is less than $77,000 (single) or $123,000 (joint)
  • Partially deductible if MAGI is between $77,000 and $87,000 (single) or $123,000 and $143,000 (joint)
  • No deduction if MAGI is over $87,000 (single) or $143,000 (joint)

During the 2024 tax year, you are covered by a WRP and your spouse isn't:

  • Fully deductible if MAGI is less than $230,000 (joint)
  • Partially deductible if MAGI is between $230,000 and $240,000 (joint)
  • No deduction if MAGI is over $240,000 (joint)

During the 2024 tax year, you are covered by a WRP and married filing separately:

  • Partially deductible for MAGI up to $10,000
  • No deduction for MAGI more than $10,000

1 The “Retirement Plan” box in Box 13 of your W-2 tax form should be checked if you were covered by a retirement plan at work.

2 Your filing status is considered single for IRA contribution purposes if you did not live with your spouse during the tax year. See IRS Pub 501 for more information.

Traditional IRAs offer tax-deferred growth potential. You pay no taxes on any investment earnings until you withdraw or “distribute” the money from your account, presumably in retirement.

If you make distributions before age 59 1/2, you may owe a 10% additional tax. There are exceptions which allow you to avoid the 10% additional tax:

  • Death
  • Disability
  • Eligible medical expenses
  • Certain unemployed individuals’ health insurance premiums
  • Qualified first-time homebuyer (lifetime maximum $10,000)
  • Qualified higher education expenses
  • Substantially Equal Periodic Payments (SEPP)
  • Roth conversion
  • Qualified reservist distribution
  • Birth or adoption expenses (up to $5,000)
  • Certain qualified disaster distributions defined by the IRS, or
  • IRS levy
  • Certain qualified disaster distributions defined by the IRS up to a maximum of $22,000
  • Distributions by individuals who are terminally ill. Such distributions may be repaid within three years
  • Victims of domestic abuse will be able to withdraw up to $10,000 (indexed for inflation) and may be repaid within three years.
  • Distributions for personal or family emergency expenses up to $1,000 and may also be repaid within three years. You are allowed only one distribution per year and must wait until the distribution is repaid or three years before taking another distribution for this reason.

Keep in mind you will generally owe ordinary income tax on any amount taken from your Traditional IRA.

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What is Modified Adjusted Gross Income?

Your Modified Adjusted Gross Income (MAGI) is found by taking your Adjusted Gross Income (AGI) and adding back certain items, such as foreign income, student-loan deductions, or other items determined by the IRS. This amount is used to determine your deductibility for Traditional IRA or eligibility for Roth IRA contributions.