Self-Directed IRA – Traditional IRA
Self-Directed IRA – Traditional IRA – The Basics
A Self-Directed IRA – Traditional IRA is the oldest and most common type of retirement plan. It may be opened by any individual who has earned income and wants to set aside a portion for retirement on a tax-deferred basis. Contributions to Self-Directed IRAs – Traditional IRAs may be made until you are 73 years of age.
Why Consider a Self-Directed IRA – Traditional IRA?
You are eligible to deduct your contribution now and you anticipate your tax rate at retirement to be lower than your current tax rate.
You need a tax deduction, lowering your current tax bill. (Some investors still contribute to a Self-Directed IRA – Traditional IRA account even without the tax deduction).
You are looking for a larger choice of investment options for your funds.
You are not eligible for a Roth IRA.
You are allowed to make contributions even if your income is above the earning limit for the year, however the contributions are not deductible but the earnings grow tax deferred.
Please consult your tax professional for the plan that best suits your individual needs.
Funding Your Self-Directed IRA – Traditional IRA
A Self-Directed IRA – Traditional IRA account may be funded with a transfer, a rollover, or a yearly contribution. An IRA-to-IRA transfer is the most common way to fund a Self Directed IRA – Traditional IRA. A rollover is initiated, by the plan participant/IRA-holder, when moving funds from an existing employer plan, such as a 401k, or a pension plan. Contributions can be made yearly (see chart below for contribution limits).
Self-Directed IRA – Traditional IRA Eligibility
If you have earned income and want to save for retirement on a tax-deferred basis, you may contribute to a Self-Directed IRA – Traditional IRA account until you are 73 years of age.
If you are eligible to contribute to an IRA, the amount you can deduct from your taxes will depend on whether you (or, in some cases, your spouse) are an active participant in a retirement plan at work.
| Traditional IRA Contribution Limits | 2022/2023 |
|---|---|
| Age 49 or younger | $6,000/$6,500 |
| Catch Up Contributions Provision Age 50+ | $1,000/$1,000 |
| Total Contributions If Over Age 50+ | $7,000/$7,500 |
In 2022, you can contribute up to 100% of your compensation or a maximum of $6,000 ($7,000 if 50 and over.)
In 2023, you can contribute up to 100% of your compensation or a maximum of $6,500 ($7,500 if 50 and over.)
Spousal IRA
If you have a non-working spouse at home, they are eligible to open a Spousal IRA based on the income of the working spouse. The contributions are the same as in the chart above.