Traditional IRAs were the first type of individual retirement arrangement. One advantage of a traditional IRA is that it allows you to deduct the amount of any contribution from your taxes in the year the contribution was made (depending on your income level and whether or not you or your spouse has a Work Retirement Plan). For anyone hovering near the cutoff point of a higher tax bracket, this could save as much as 10% of your income in taxes each year.
Advantages of a Traditional IRA
- Taxes are deferred from the current tax year to the tax year when the account holder begins taking distributions from the IRA
- For high income earners you can convert a Roth IRA from a traditional IRA to give you tax free income in the future
Disadvantages of a Traditional IRA
- Any withdrawal is taxed as ordinary income
- Retirees must begin taking a Required Minimum Distribution (RMD) when reaching age 70.5. This means you must begin withdrawing a certain percentage of your account each year once you reach this age. Distributions from a traditional IRA are taxed as normal income at whatever tax bracket you fall into.
- Any money withdrawn from a traditional IRA before age 59.5 is subject to a 10% IRS tax penalty
First Senior Financial Group’s IRA Strategies
First Senior Financial Group’s skilled educators can help you decide the best way to proceed with your IRA. Armed with close knowledge of ever-changing IRA laws, our educators can custom-tailor a strategy that will suit your needs.