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Personal Accounts
Individual Retirement Account
Traditional IRA
TRADITIONAL IRA
Individual Retirement Accounts (IRAs) were created by Congress to encourage individuals to save money for their retirement. Some of the benefits of contributing to an IRA include tax-deferred earnings, income replacement for retirement, and, in some cases an income tax deduction.
You can set up and make contributions to a traditional IRA if you (or, if you file a joint return, your spouse) received taxable compensation during the year and you were not age 70 ˝ by the end of the year.
The contribution limit for traditional and Roth individual retirement accounts (IRAs) is $3,000 for the tax year 2003 and 2004. The limit will eventually increase to $5,000 in 2008, and then be subjecto periodic costs-of-living adjustments (COLA) The following chart shows the new contribution limits for traditional and Roth IRAs.
| Tax Year | Contribution Limit |
| 2002 - 2004 | $3,000 |
| 2005 - 2007 | $4,000 |
| 2008 | $5,000 |
| 2009 and after | $5,000 + COLA |
Catch-Up Contributions:
individuals who have attained age 50 before the close of the taxable year (December 31) may contribute additional amounts, allowing them to "catch-up" on their savings. The "catch-up" amount is $500 for each year, until 2006 when it becomes $1,000. The following chart shows the new contribution limits for traditional and Roth IRAs including the "catch-up" amounts.
|
Tax Year |
Contribution Limit |
Catch-Up Amount |
Contribution Limit if Age 50 and Over |
| 2000 - 2004 | $3,000 | $500 | $3,500 |
| 2005 | $4,000 | $500 | $4,500 |
| 2006 - 2007 | $4,000 | $1,000 | $5,000 |
| 2008 | $5,000 | $1,000 | $6,000 |
| 2009 and after | $5,000 + COLA | $1,000 | $5,000 + COLA + $5,000 |
To make tax-year contributions to a Traditional IRA, an individual must be younger than age 70 ˝ for the entire year and must have earned income. Earned income includes wages, salaries, tips, professional fees, bonuses, and other amounts received for personal services rendered. Spousal contribution rules allow a married individual with little or no income to have a tax-year IRA contribution based on their earned income combined with their spouse’s earned income.
