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Saving for Retirement >

• The Basics
• Understanding IRAs
  • Six Reasons to Consider an IRA
  • Consolidate Retirement Savings
  • Investing in an IRA: What You Need to Know
  • Traditional IRAs
  • Roth IRAs
  • SEP IRAs
  • Traditional vs. Roth
  • Keep Your IRA Accounts Well Maintained
  • Why Convert to a Roth IRA?
  • Eligibility for Roth IRA Conversions Extended to All Investors
• Investment Ideas
• Family Matters
• Tax Considerations

TRADITIONAL IRAs

A Traditional IRA is a tax-deferred individual retirement account, or an individual retirement annuity, from which eligible investors may be able to obtain a tax deduction on their contributions. You are eligible for the deduction if:

• Neither you nor your employer are contributing to an employer-sponsored retirement plan on your behalf. If you're not covered by an employer's retirement plan, you can deduct the full amount of your contribution from your federal taxes, regardless of the amount of your income.
• You're covered by an employer-sponsored retirement plan but meet the necessary income requirements. In this case, you're eligible either for a full deduction or a partial deduction. (See below.)

Contribution Limits/Rules

The Traditional IRA contribution limit from your earned income for the 2009 tax year is a maximum of $5,000 (or up to $6,000 if you're age 50 or older).

You must be under age 70½ to be eligible to contribute to a Traditional IRA.

For the 2009 tax year, the rules pertaining to Traditional IRA tax deductions are:

Full Deduction

• You're not covered by an employer-sponsored retirement plan.
• You're a single filer and your modified adjusted gross income (MAGI) is $55,000 or less
• You're a joint filer and your MAGI is $89,000 or less

Partial Deduction

• You're a single filer and your MAGI is between $55,000 and $65,000
• You're a joint filer and your MAGI is between $89,000 and $109,000

No Deduction

If you're covered by an employer-sponsored retirement plan and your MAGI is above these limits, you can still contribute to a Traditional IRA, but you cannot deduct your contributions.

Withdrawal Rules

Withdrawals from a Traditional IRA after age 59½ are taxed at your ordinary income tax rate. However, if you withdraw money from a Traditional IRA before age 59½, you may pay a 10% early withdrawal penalty, as well as ordinary income tax.

The IRS may waive this penalty when distributions are used for:

• Certain unreimbursed medical expenses
• Medical insurance, providing certain conditions are met
• A disability, if certain conditions are met
• Payments to designated beneficiaries in the event of the death of the IRA owner
• Payments that are part of a series of substantially equal periodic payments made, at least annually, for the life or life expectancy of the individual (or the joint lives or joint life expectancy of the individual and his/her designated beneficiary)
• Qualified higher education expenses
• The purchase of a first home
• Qualified hurricane distributions
• Qualified reservist distributions

Traditional IRA owners must begin taking minimum distributions no later than April 1 following the year they turn age 70½, or else they face a 50% IRS penalty tax on the amount they should have withdrawn.

A Traditional IRA may be appropriate if:

• You meet the contribution limits listed above and can thus make tax-deductible contributions.
• Your earnings are too high to make you eligible for a Roth IRA. (In such a case, you can open a Traditional IRA, although your contributions won't be tax deductible.)
• You believe you may be in the same or a lower tax bracket in retirement.
• You may need to draw from retirement savings for education costs or a first home.

Neither TIAA-CREF nor its affiliates offer tax advice. Consult with your tax advisor regarding your personal situation.

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