Traditional IRA

Self-Directed Traditional IRA

Traditional IRAs allow you to save pre-tax money for retirement. If you are eligible to deduct contributions on your income taxes now and you anticipate a lower tax rate in retirement, then this is a good plan to consider.

A self-directed traditional IRA works exactly like a typical traditional IRA. The only difference is the added benefit of using alternative investments to build retirement income. And, there’s a bonus: you are in control of choosing those assets. You can invest in things like real estate and private equity instead of only stocks, bonds, and mutual funds.

If you have an employer-sponsored plan, you can roll those funds into a self-directed IRA. The account can also be funded with cash contributions or by transferring funds from an existing IRA.

Features

  • You choose your own investments
  • Tax-deferred earnings
  • Pre-tax contributions that may be tax-deductible
  • Penalty-free distributions start at age 59 ½
  • Required minimum distributions (RMDs) begin at age 70 ½

Eligibility

  • Must have received earned income as defined by IRS Publication 590-A
  • Have not reached 70 ½ by end of the contribution year

Woman-on-Computer-Traditional-IRA

Man-Portrait-Traditional-IRA

DISTRIBUTIONS

Distributions are included in your annual income tax liability. If you are under the age of 59 ½ and take a distribution, there is a 10 percent early withdrawal penalty in addition to income tax that may be due. There are a few exceptions to the 10 percent penalty:

  • You inherited the IRA
  • You are disabled
  • You pay qualified education expenses for you or your dependents
  • You are a first-time home buyer (up to $10,000)
  • You pay medical expenses exceeding 10 percent of adjusted gross income

Contribution Limits of a Self-Directed Traditional IRA

Traditional IRA 2018 2019
Annual Contribution $5,500 $6,000
Catch-Up Contribution (age 50 and older) $1,000 $1,000