The Traditional IRA is one of the most common types of retirement accounts in the United States today. It was established in 1974 as part of the Employee Retirement Income Security Act.
Traditional IRA Contributions
The contributions you make to your Traditional IRA are done with pre-tax dollars. This means you do not need to pay tax on the money you place in your IRA until it’s time for that money to come out. Typically, individuals who feel they will earn less during retirement believe it is a good option to have a Traditional IRA. Tax brackets are lower at lower income levels. Therefore, it may be better to wait until retirement to pay taxes on those dollars. There are limitations on contributions for Traditional IRAs. As of 2013 the IRS allows up to $5,500 in contributions. If you are over the age of 50 you are eligible to make an extra $1,000 in “catch-up” contributions. Contributions are tax-deductible up to a certain income level. Depending on if you are single or file jointly, there are certain income ranges you need to pay attention to. Please consult the IRS or a tax professional to determine if your Traditional IRA contributions will be deductible or non-deductible.
Traditional IRA Distributions
After the age of 59 ½ you may begin taking distributions from your IRA without penalties. There are other instances in which you may take distributions before this age, however. If you take early distributions to buy your first home, pay medical expenses, pay for higher education, and/or for disability reasons you will most likely not have to pay any penalties. Reasons outside of this will typically result in a 10% early withdrawal penalty. You must begin taking Required Minimum Distributions (RMDs) at the age of 70 ½. The IRS will not allow you to keep funds in your Traditional IRA indefinitely. You may face a 50% tax penalty on the RMD amount not withdrawn.
How does Traditional differ from Roth?
Unlike a Traditional IRA, Roth IRAs are funded with after-tax dollars. Because of this, the dollars that go into a Roth IRA are not taxed upon withdrawal. Similar early distribution rules apply to a Roth IRA as to a Traditional. Furthermore, you are not required to take RMDs with a Roth IRA.
Adding Gold and Silver to a Traditional IRA
If you are considering converting your Traditional IRA to precious metals, American Bullion can help. Our in-house IRA Processing Department specializes in transferring or rolling over many different types of retirement plans to physical gold, silver, platinum, or palladium coins and bars. Contact one of our specialists today at 1-800-326-9598 to find out how diversifying into precious metals can benefit your retirement portfolio.