2. There is no minimum age requirement to participate in traditional IRAs. Your children can have a Traditional IRA as long as they have earned income.
3. However, you must be under 70 ½ in order to make contributions to a Traditional IRA.
4. The Traditional IRA must be set up and funded on or before April 15 of the following year. For example, for 2011 tax year, you can set up and fund an IRA on or before April 17, 2012 to receive the tax deduction for 2011. Taxpayers have 2 extra days to set up their Traditional IRA’s.
5. A spouse’s income counts for the individual. For example, if you are a stay at home parent with no earned income, you can still contribute to a Traditional IRA if your spouse has earned income, as long as your spouse’s Adjusted Gross Income is below the AGI Phase out Limits.
|Deduction Limit||Single, Head of Household AGI is between:||Married Filing Jointly AGI is between:||Married Filing Separately AGI is between:|
|Full Deduction||$0 – $58,000||$0 – $92,000||Not allowed|
|Partial Deduction||$58,000 – $68,000||$92,000 – $112,000||$0 – $10,000|
|No Deduction||$68,000 or more||$112,000 or more||$10,000 or more|
6. Traditional IRA’s may be subject to creditors and lawsuits depending on where you live. States like Texas and Washington protect virtually the entire IRA, while other states such as New Hampshire and New Mexico protect none of it. Here in California, the amount of your Traditional IRA protected from creditors is at the discretion of the judge presiding on the case. An umbrella Insurance policy would help protect your assets in a Traditional IRA in the event of a lawsuit.
7. The first Million in a Traditional IRA is protected from Bankruptcy.
8. Traditional IRA contributions are 100% tax deductible if:You’re not an active participant in an employer sponsored retirement plan.
You are an active participant in an employer plan and your Adjusted Gross Income is below or within the AGI phase out limits established by the IRS.
9. If your income is within the AGI Phase out limit, you can calculate your Non Deductible amount with the following equation:
Non-Deductible Amount = IRS Contribution Limit x [(Your AGI – Low Phase Out)/$10,000]
For example, a single taxpayer contributes $5,000 to a traditional IRA and has $65,000 AGI:
$5,000 x ($65,000 – $58,000)/$10,000 = $3,500 of contribution is not tax deductible.
Only $1,500 is tax deductible ($5,000 contribution – $3,500 non-deductible amount – $1,500).
10. Investments such as Life Insurance and Collectibles are not allowed in a Traditional IRA.