IRS Traditional IRA Regulations

An IRA lets you build up tax-deferred retirement savings.

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A traditional individual retirement arrangement, or IRA, offers working people a tax-advantaged way to save for retirement. A traditional IRA provides you a tax deduction for the money you contribute to your IRA account. Additionally, earnings and capital gains on your contributions are not taxed until you withdraw them.

Opening Account

You can open an IRA if you received taxable compensation that you earned by working for an employer or from self-employment and are under 70 1/2 years old. Compensation also includes alimony, separate maintenance payments and tax-exempt military combat pay. If you are married filing jointly, only one spouse needs to have compensation. You can have an IRA regardless of any other retirement plan you may have. If you are married filing jointly, you and your spouse each can have an IRA even if only one of you had compensation. You can open an IRA account through banks, credit unions, savings and loan institutions, brokerages, mutual funds or life insurance companies.

Contribution Limits

You can contribute up to $5,000 per year to a traditional IRA, but if you are older than 50, you can contribute up to $6,000. People not covered by an employer's retirement plan can deduct their entire IRA contribution regardless of income or filing status. For those under an employer plan, the deductible IRA contribution amount will depend on your income and filing status. If you can take only a partial deduction of your contribution, you can make an additional nondeductible contribution up to the annual limit. For example, if you could deduct only $3,500 in IRA contributions because of income limits and you were 45 years old, you can make an additional nondeductible contribution of $1,500 to your IRA.

Deduction Phaseout

If you file jointly and one spouse was covered by an employer's retirement plan, your IRA contribution is fully deductible if your 2012 income was below $171,000 and partly deductible for income between $171,000 and $181,000. If married filing separately and you or your spouse is covered by an employer's retirement plan, you get no deduction if your income exceeds $10,000. If you and your spouse filed jointly and both were covered by an employer's retirement plan, you get a full deduction if your income was under $92,000 and a partial deduction for income between $92,000 and $112,000. The limits for singles in an employer plan are $58,000 for a full deduction and $58,000 to $68,000 for a partial deduction.


If you are older than 59 1/2, you can start taking retirement distributions. These distributions are taxed as ordinary income. You must start taking a required minimum distribution at 70 1/2 years of age. The minimum is figured each year by dividing your IRA account balance by your remaining life expectancy. You can take distributions before you turn 59 1/2 years old, but you will pay a 10 percent penalty tax in addition to the income tax on the distribution. The 10 percent penalty can be waived in certain hardship situations including extraordinary unreimbursed medical bills, paying health insurance premiums after job loss, disability, paying college expenses, buying your first home or if you annuitize your IRA to provide a series of equal payments over your remaining life expectancy.


You can roll the assets in your traditional IRA into another traditional IRA or a tax-deferred, employer-sponsored retirement account such as a 401k without tax or penalty, provided you complete the rollover transaction within 60 days. A rollover cannot be deducted from your taxable income. You also have the option to convert your traditional tax-deferred IRA to a Roth IRA for tax-free retirement income. You will owe income taxes but pay no penalty on the converted amount in the year you make the conversion.