Traditional IRAs

This individual retirement account (IRA) is a tax-deferred account designed specifically for retirement savings. This means you generally won't pay taxes on the money in your IRA until you start withdrawing it.

A traditional individual retirement account (IRA) is a tax-deferred account designed specifically for retirement savings. This simply means you generally won't pay taxes on the money in your IRA until you start withdrawing it. At that time, the money you take out of your IRA will be taxed just like regular income. On the front end, the money you deposit today into your traditional IRA may be deductible from your taxable income.

Many people find themselves in a lower tax bracket when they retire. This means that while you're working, you may get a bigger tax break on IRA contributions. Then, when you withdraw the money later in life, it's potentially taxed at a lower rate.

We understand that saving for retirement can be a challenge. Not only do you need the day-to-day discipline to stick with your savings strategy, but you have to keep up with IRA rules and regulations. We can help.

Traditional IRA contribution limits

An individual may contribute up to the lesser of 100% of their taxable compensation or the applicable limit set each year. Beginning with tax year 2020, an individual is eligible to contribute to a traditional IRA, regardless of age, as long as they have taxable compensation. For 2019 and prior years, contributions couldn't be made for the year an individual turned 70½ and older. For 2020 and 2021, you can generally contribute up to $6,000.

If you're 50 or older by Dec. 31, you can make a $1,000 "catch-up" contribution for a total of $7,000. 

Additionally, non-working spouses can make traditional IRA contributions if the couple is married, files a joint return and the working spouse has taxable compensation. Contributions must be made in cash either by check, money order or transfer. While contributions can be made throughout the year, the deadline is generally July 15 or the tax-filing deadline, not including extensions.

Can high-income earners contribute to a traditional IRA? 

Unlike Roth IRAs that have contribution limits based on your modified adjusted gross income (MAGI), high-income earners can contribute to a traditional IRA. 

Traditional IRA tax deductions

Contributions may be deductible and may also produce a tax credit. Your ability to deduct contributions today generally depends on your participation in your employer's retirement plan and your income.

If you're:

  • Single and don't have a 401(k) or other retirement account through your employer, you can deduct your full contribution.

  • Married and neither you nor your spouse has an employer retirement plan, you can deduct your full contribution.

  • Covered by a plan, or your spouse has one through work, the amount of the contribution that can be deducted will depend on your modified adjusted gross income (MAGI).

How much can an IRA reduce your taxes? 

Traditional IRA tax deductions are determined by how you file your taxes and your MAGI. See the charts for details.

Traditional IRA MAGI Limits - Single or Head of Household

2020 MAGI 

 

$65,000 or less

$65,001 - $74,999

$75,000 or more

2021 MAGI

 

$66,000 or less

$66,001 - $75,999

$76,000 or more

Amount of Contribution Deductible 

Full

Partial

None

Traditional IRA MAGI Limits - Married Filing Jointly or Qualifying Widow(er)

2020 MAGI 

 

$104,000 or less

$104,001 - $123,999

$124,000 or more

2021 MAGI

 

$105,000 or less

$105,001 - $124,999

$125,000 or more

Amount of Contribution Deductible 

Full

Partial

None

Traditional IRA MAGI Limits - Married Filing Separately

2020 MAGI 

 

Less than $10,000

$10,000 or more

2021 MAGI

 

Less than $10,000

$10,000 or more

Amount of Contribution Deductible 

Partial

None

401(k) vs. traditional IRA

A 401(k) plan is a profit-sharing plan designed to allow employees to defer their salary for retirement savings. Employer matching programs within 401(k) plans usually provide a strong incentive for employee participation. Because 401(k) contributions are pre-tax, they can reduce the tax burden for the employer and employee.  

A traditional IRA is funded by an individual with after-tax dollars which may be tax deductible or may yield a tax credit. Both 401ks and traditional IRAs have contribution limits. 

A 401(k) Isn't a traditional IRA 

401(k) plans can accept several types of contributions including employer profit-sharing contributions, employer matching or non-elective contributions and employee pre-tax contributions. If allowed by the 401(k) plan document, employees may be able to make after-tax contributions or Roth contributions. Traditional IRAs are funded by the individual.

Investments you can choose 

In your Edward Jones IRA account, you can choose from a variety of investments – stocks, bonds, certificates of deposit (CDs)mutual funds and exchange-traded funds (ETFs).

Traditional IRA withdrawals and penalties

  • Penalties – If you withdraw money from your IRA before age 59½, you may be required to pay a 10% IRS penalty in addition to income taxes – but there are exceptions. If you need the money for college, a first-time home purchase, or expenses for medical purposes, death, disability and health insurance due to a period of unemployment, you may not have to pay the early withdrawal penalty.*

  • Required Withdrawals – When you reach age 72, the IRS generally requires you to withdraw a minimum amount each year. These are called required minimum distributions, or RMDs. At Edward Jones, we calculate this amount for you automatically. So if you have IRAs outside Edward Jones, consider consolidating them so we can help make the RMD process easier for you.

  • Contribute All Year – You can contribute to a traditional IRA throughout the year and up until your tax-filing deadline – usually around April 15. 

  • Roth IRA Conversions – If you have a traditional IRA, it might make sense to convert some or all of it to a Roth IRA.

How we can help

Does a traditional IRA seem right for you? Let's talk. We invite you to meet with one of our financial advisors and start the conversation.

Important Information:

*Withdrawals are subject to IRS rules and regulations. Please see your qualified tax professional for all the relevant information before making a decision.

Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation.