Traditional IRA - What is a Traditional IRA

What is a Traditional IRA?

A Traditional IRA is a retirement plan for individuals just as a 401k is a retirement plan for an employee. The traditional IRA is the most common type of IRA and is sometimes referred to as just IRA vs Roth IRA, SEP IRA or SIMPLE IRA. Below are definitions of related terms of traditional IRA.

What is the Traditional IRA contribution limit?

The traditional IRA contribution limit is the amount that the IRS or IRC tax laws allow taxpayers to contribute (put money into the IRA) each year. Since, for most taxpayers, all contributions into the traditional IRA are given special tax treatment and money in the traditional IRA grow tax deferred, investments in a traditional IRA account can accumulate very quickly. The tax laws allow tax deferred growth in the traditional IRA to help people save for retirement.

For most people, opening and contributing to the traditional IRA is a good way to save for retirement. However, others prefer the Roth IRA for its added tax benefits at withdrawal.

For 2007, the traditional IRA contribution limit is the smaller or:

$4,000 if age less than 50 or $5,000 if age 50 or over, or

taxable compensation for the year

What is a spousal traditional IRA?

When a taxpayer files his or her tax return as a married filing jointly taxpayer, his or her spouse can also open an IRA account under own name as a spousal traditional IRA. By filing jointly with your spouse, the traditional IRA contribution limit is slightly different to take into account the spouse's allowance and income.

What is the traditional IRA contribution limit if I have more than one IRA?

If a traditional IRA owner has more than one IRA such as has a traditional IRA and also a Roth IRA, then the total contribution limit is still as shown above. The IRS doesn't care how many IRAs a taxpayer has as long as he or she is not violating the total contribution amount allowed.

What are the benefits of having more than one IRA?

Some investors have more than one IRA account for investment purposes. However, for tax purposes, anyone really needs one IRA account. Sometimes, a taxpayer opens a Roth IRA account and then also a traditional IRA account but usually no one opens two traditional IRA accounts under one name because they are likely to have to pay fees to upkeep each of the IRA accounts.