Traditional IRA

What is it?
A Traditional IRA (as opposed to a Roth IRA) is a type of retirement investment. You do not pay taxes on your annual contributions (see limits) to a Traditional IRA. This means that you will pay taxes when you withdraw this money later in life, taxed at whatever tax bracket you are in during retirement.

Note from about.com:
*The money in the account can generally be invested in stocks, bonds, mutual funds, or CDs.
*Any interest or capital gains from the investments are not taxed when the gains are realized. Instead, they are deferred until money is withdrawn from the IRA, at which point the money is taxed as ordinary income.

Pros and cons
*The nice thing about a Traditional IRA is that you can deduct your annual contributions when you do your taxes.
*The bad thing about the Traditional IRA is that you will have to pay taxes later (at a possibly higher tax rate).
*Another bad thing is that you are required to start taking money out of this account when you reach age 70 1/2.


Eligibility Requirements
Source: about.com

Anyone with earned income is eligible to open a traditional IRA, but there are some restrictions as to who can deduct the contributions. There are income limits that are used to determine how much of the contributions are deductible, if any at all.

If you are currently covered by a retirement plan at work in 2007, deductibility for traditional IRA contributions are phased out if your modified adjusted gross income is:

* More than $83,000 but less than $103,000 if married and filing a joint return

* More than $52,000 but less than $62,000 for a single individual or head of household

* Less than $10,000 for a married individual filing a separate return

If you live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work but you are not, the deduction is phased out if your modified adjusted gross income is more than $156,000 but less than $166,000.


Which to choose: Traditional or Roth?
Read this article: about.com