A traditional IRA account is a savings program that allows individuals under the age of 70 ½ to save toward retirement. The key to this savings program is that it allows taxpayers to deduct some or all of contributions from their in addition to tax-deferred growth, meaning that you don’t pay taxes on the income generated by capital gains, dividends and other gains generated by securities held in the IRA.
Now, the amounts that can be contributed to a traditional Individual Retirement Account is affected by marital status, income and if the taxpayer has a 401k program through his or her employer.
The following are the standards for 2008:
_The contribution limit is $5000 or $6000 if you are 50 years of age or older before the end of the year.
_ If you are married and file jointly the deductible contribution amount is $10,000 or $12,000 if both spouses are age 50 or older.
_ If you are covered by a retirement account at work then your contributions are limited if your Modified Adjusted Gross Income (see Modified Adjusted Gross Income article) is:
1. Between $53,000 and $63,000 for single individual or head of household.
2. Between $83,000 and $105,000 for married filing jointly or qualified widow(er).
3. Less than $10,000 for a married couple filing separately.
Caution: One of the most common pitfalls of the Traditional IRA account is that taxpayers are not aware of the consequences of early distributions. Since you cannot borrow money from an IRA as one can from a 401k, large tax liabilities are a dire consequence of these actions.
It is very important if you find yourself in this situation to contact an expert in tax liability and consult about the different options available.