Simply put, a Traditional IRA is an IRA that is not a Roth or a Simple IRA. With a Traditional IRA you are allowed to contribute up to 100% of your compensation, up to a maximum dollar amount per year. These contributions may be tax-deductible depending on your income, tax-filing status and of course the coverage by the retirement plan sponsored by your company. Be careful though, if you decide to make early withdrawals, you may be subject to ordinary income tax. Here are a couple common questions and answers about Traditional IRA's:

1.What are the main advantages of a Traditional IRA?

If you like the fact that your contributions to a Traditional IRA are tax-deductible (compared to a Roth IRA where they are not), you will like the Traditional IRA. Another advantage of a Traditional IRA is that you realize the tax benefit immediately (versus the Roth IRA where you are paying with 'after-tax' dollars). The unfortunate aspect of the Roth IRA as well is that you always run the risk that Congress could decide to tax Roth distributions (where you are safe with a Traditional IRA in that respect).

2.What are the main disadvantages of a Traditional IRA?

Of course, there are some disadvantages to the Traditional IRA. First and foremost, you have to meet the eligibility requirements for the tax-deductibility portion. If you are eligible for a Traditional IRA, your income must be below a specific threshold for your filing status (ask your employer for more details). Also, as discussed above, any withdrawals from your Traditional IRA are included in your gross taxable income and subject to federal income tax, with the exception of any non-deductible contributions. Finally, if you happen to have a lot of disposable income (we all wish we did!) a Roth IRA actually protects more of your assets from taxes on capital gains than a Traditional IRA does,

Maybe the greatest disadvantage of a Traditional IRA though is the forced distributions based on your age. You can start withdraw funds at the age of 70 1/2 without penalty (more specifically, April 1 of the year you turn 70 1/2) and you are subject to and annual minimum distribution if you decide to start withdrawing funds at any age beyond 59 1/2. On the flip side, the Roth IRA has no such restrictions, but remember, those are 'after-tax' dollars you are contributing!

Getting your head around various Traditional IRA options can be difficult at best, www.retireology.com is here to help answer some of the important questions and give you relevant info about Traditional IRAs!