A traditional individual retirement account (IRA) is a tax-advantaged investment account that allows you to contribute to your retirement. In some cases, you can deduct your contribution from your current income taxes, deferring payment of those taxes until you make a withdrawal from your IRA.
Traditional IRA features:
Things to consider:
Contribution limits—2016 tax year:
Individuals who have earned income and their spouses, if married filing jointly, can contribute to a traditional IRA up until the year in which they turn 70½. With a traditional IRA, you may be able to deduct your contributions on your taxes. Your eligibility to deduct is based on your modified adjusted gross income (MAGI) and whether you or your spouse participate in a retirement plan at work.
For the 2016 tax year, if you (and your spouse) are not covered by an employer-sponsored plan, contributions to a traditional IRA are:
For the 2016 tax year, if you are covered by an employer-sponsored plan, contributions to a traditional IRA are:
For the 2016 tax year, if one spouse is covered by an employer-sponsored plan and one spouse is not, contributions to a traditional IRA are:
The IRS provides guidelines about claiming a tax deduction for your traditional IRA contributions. Note that even if your contribution is not deductible, an after-tax contribution to a traditional IRA can still be a great way to invest for tax-deferred growth potential.
Once you start taking money from your IRA, withdrawals are taxed as ordinary income. If you make withdrawals before age 59½, you may be charged a 10% early-withdrawal penalty. There are a few exceptions that allow you to avoid the 10% penalty. Those exceptions include:
While these exceptions allow you to withdraw money early without the 10% IRS penalty, you will generally pay taxes on any amount withdrawn from your traditional IRA.
Any tax or legal information on this website is merely a summary of our understanding and interpretations of some of the current income tax regulations and is not exhaustive. Investors should consult their tax advisor or legal counsel for advice and information concerning their particular situation. Wells Fargo Funds Management, LLC; Wells Fargo Funds Distributor, LLC; or any of their representatives may not give legal or tax advice.