A Traditional IRA is the term for a regular IRA available to those under age 70 1/2 who have earned income (i.e., job compensation). Earnings within the traditional IRA grow tax-deferred until withdrawal. Withdrawals must begin, and will be taxed, when the owner reaches age 70 1/2. If required distributions are not taken at that age, a 50% penalty will be assessed on the amount not taken. When made, contributions may or may not be tax deductible depending on the factors discussed previously in “All About IRAs.”
A working spouse not covered by a retirement plan through employment may make a tax-deductible contribution of 5K annually to a spousal IRA despite the other spouse’s coverage under an employer-provided retirement plan. When the couple’s AGI reaches $167,000, deductibility for such contributions begins to decline, and it reaches zero at a joint AGI of $177,000.