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What is a Traditional IRA Account

Determined as an individual savings account, the traditional IRA allows contributions that cannot exceed a predetermined amount. The contributions are exempt of taxes, which makes IRAs so attractive to many investors. Only after you decide to withdraw the money out of your IRA account you are charged a tax, whose rate is the same as the one on income. But, if you take money out of your account before the age of 59 1/3, you will be subject to penalties and income tax. Additionally, once you reach the age of 70 ½ you are required to start withdrawing money from the account.

The institutions that are authorized to open IRA accounts are some credit unions, banks, brokerages, and etc. In order to find more information on where you can open an IRA account, directly address any financial institution, a broker or your accountant. Nevertheless, you don't have to wait for a particular time of the year to open an IRA account. However, before you submit your tax filing, you should start making contributions to your IRA account.

Benefits of Traditional IRA

The traditional IRA provides the opportunity of its investors to allocate a specific amount of money without being liable to taxation. Only after you decide to withdraw money out of your account you are subject to an income tax.

Drawbacks of Traditional IRA

One of the drawbacks of traditional IRAs is that they are limited with regards to the contributions you can make. You start retrieving money when you reach the age of 70 ½. Additionally, when you reach the age of 70 ½ you are not allowed to further contribute to your account. After you have established your withdrawal schedule, you should stick to it by retrieving the specified amount on the specified time. Failure to do so will result in penalties. On the other hand, if you need money that is in excess of the contributions, you will be subject to both taxation and a 10% penalty. Taxes are also collected on the earnings that your heirs will eventually hold. 

Distribution Requirements

If you need money prematurely you will be liable to a 10% income tax. Additionally, you will be charged an income tax. If you are lucky enough to hold more than one IRA account, they will be treated as a single one. This means that even if you experience distributions from one, the taxation will be applied to the IRA accounts as one whole.

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