Robert D. House, Certified IRA Specialist

Traditional IRAs - Overview

The First Step is taking Stock...

A Traditional IRA is a retirement savings vehicle that allows eligible individuals to save for retirement by contributing up a certain amount each year. Earnings on investments in a Traditional IRA grow on a tax-deferred basis. This means that the IRA owner does not pay taxes until the amount is distributed (withdrawn) from the IRA.

 

This is a very attractive feature, as earnings accrue on earnings, resulting in a compounding effect and larger balances. Ideally, amounts are distributed from the IRA when the owner is retired, when many individuals will be in a lower tax bracket, resulting in lower taxes on the IRA assets.

 

A Traditional IRA must be established with a financial institution that is approved by the IRS to serve as custodian or trustee. This includes banks, credit unions, insurance companies and brokerage firms When you establish a traditional IRA with a financial institution, you must be provided with a Traditional IRA adoption agreement, disclosure statement and the financial institution's financial- disclosure.

 

These explain the terms and conditions of the agreement, which includes information about fees, penalties, contributions rules, distribution rules and investment rules. Your Traditional IRA is not considered established until you sign the adoption agreement.

 

If the Traditional IRA is not already established, it must be established by your tax filing due date, which is usually April 15 of the year following the year to which the contribution applies. Extensions do not apply to establishing IRAs, nor making IRA contributions.

 

 

 

Robert House