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Retirement: For Individuals: Traditional IRA

Whether retirement is just around the corner or far down the road, a traditional IRA can be an excellent way to save for or generate income during retirement. And with all the uncertainties concerning retirement today, finding options that can provide needed or additional retirement income becomes even more crucial.

The following are answers to some frequently asked questions about traditional IRAs:

What is a traditional IRA?

A traditional IRA is an individual retirement arrangement that allows certain eligible individuals to deduct their contributions from taxable federal income taxes and the potential to defer taxes while they're saving until they're ready to begin withdrawals, which can be any time between age 59½ and 70½. Assets can be removed from an account at any time, but may be subject to an IRS penalty.

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What are some of the advantages of a traditional IRA?

With a traditional IRA, you may be able to:

  • Lower your federal tax liability with tax-deductible contributions.
  • Take advantage of the potential for tax-deferred growth, not paying taxes on any earnings until you withdraw money.
  • Choose from a wide range of investments that fit your investment time horizon and/or risk tolerance.
  • Invest as much as you'd like up to annual limits.

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Can you roll over another retirement plan into a traditional IRA?

You may generally roll assets from certain employer's retirement plans into a traditional IRA as long as you are able to effect an eligible rollover distribution from that plan. Moving the money into a traditional IRA will allow you to continue deferring taxes. Contact your employer's plan administrator to see if you can effect an eligible rollover distribution.

Did you know?

Non-spouse beneficiaries can roll over qualified retirement plan distributions to an inherited traditional IRA. The IRA must be set up specifically as an inherited IRA, and required minimum distribution rules apply. Previously, non-spouse beneficiaries had to take distributions directly from the retirement plan where the assets sat when the IRA owner passed away, which could be very limiting. It is important to review beneficiary designations of all your retirement plan assets to make sure they are complete and up to date.

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Can you convert a traditional IRA into a Roth IRA?

A traditional IRA can be converted into a Roth IRA, and there may be some advantages for doing so. You may anticipate that you will be in the same or a higher tax bracket by the time you withdraw the money. If so, it may make sense to pay the taxes now and convert the assets to a Roth IRA to take advantage of the potential for federally tax-free growth and future distributions. Converting to a Roth means paying the taxes now, but federally tax-free growth and distributions later.

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