Traditional IRA

A Traditional IRA defers taxes on earnings until distribution, and may allow you to take a deduction for your contributions as well.


If you have earned income in a given tax year, you are eligible to make contributions to an IRA.

Contribution Limit

The current contribution limit is $6,000 (2021); the contribution limit for age 50 and older is $7,000 (2021).

Tax Deductibility

Deductibility depends on income and participation in an employer-maintained retirement plan. If you are not an active participant in an employer-maintained retirement plan, you are eligible for a full deduction, no matter what your income.

If you are an active participant in an employer-maintained retirement plan and you make contributions, the amount of your modified adjusted gross income will determine if any IRA contributions are also deductible.

If you are not eligible for a deductible IRA, you can still make non-deductible contributions to an IRA, or you may be eligible for a Roth IRA.

Distributions without IRS Penalties

Distributions after you reach 59 1/2 are without IRS penalty. There are also no penalties: if you become disabled; upon your death; if the distributions are part of certain periodic payments; for medical expenses greater than 7.5% of your adjusted gross income; or for health insurance if you've been unemployed and have been receiving unemployment payments for 12 weeks; for certain higher education expenses; or for a first-time home purchase.

In addition, when you reach age 72, you must begin taking distributions to avoid IRS penalties.

Taxes on Distributions

If you are over age 59 1/2, simply include the taxable portion of the amount withdrawn (generally the deductible contributions and all earnings) as income on your tax return. If you are under age 59 1/2 and do not meet one of the exceptions, you must also pay a 10% IRS penalty for premature distribution, in addition to including the amount withdrawn as income on your tax return.

The nondeductible portion of the distribution is not subject to either income tax or the 10% premature distribution penalty.

Contribution Deadline

IRAs for the taxable year can be opened and funded at any time between January 1 and the date the tax return is due, excluding extensions.

Roth IRA

The Roth IRA is a nondeductible account that features tax-free withdrawals for qualified distributions after a five-year holding period, and reaching age 59 1/2.


There are two eligibility requirements for a Roth IRA: you must have earned income and your Modified Adjusted Gross Income (MAGI) cannot exceed certain limits. You may contribute 100% of your earned income up to maximum allowed. The maximum is the aggregate amount that you can contribute to any Roth and/or Traditional IRA in a given year. There are no required distributions from a Roth IRA.

Contribution Limit

The current contribution limit is $6,000 (2021); the contribution limit for age 50 and older is $7,000 (2021). 

Five-Year Holding Period

The five-year holding period begins with the tax year for which the first contribution is made. For example, you can open a Roth IRA on April 15, 2021 for tax year 2020, and the five-year period would actually begin January 1, 2020.

Qualified Distributions

In order for earnings to be tax-free, you must first meet a five-year holding period for your Roth IRA. After that, your earnings are tax-free and IRS penalty free. Qualified distributions include:

  • Distributions made on or after the date on which you attain age 59 1/2
  • Distributions made to your beneficiary or estate upon your death
  • Distributions attributable to your being disabled, and
  • Qualified first-time home buyer distributions (up to $10,000)

IRS Premature Withdrawal Penalty

The 10% IRS penalty does not apply to earnings you withdraw under any of the qualified distributions. In addition, the penalty is waived for certain other distributions, but you will pay taxes on the earnings withdrawn on these distributions:

  • Substantially equal periodic payments
  • Eligible medical expenses in excess of 7.5% of your adjusted gross income (AGI)
  • Medical insurance premiums for eligible unemployed individuals
  • Qualified education expenses
  • Distributions taken within the first five years for these reasons: age 59 1/2, death, disability or home purchase

Distributions taken for any reason other than a qualified reason or one of the reasons listed above are subject to both taxes and the 10% IRS penalty on any earnings that are withdrawn.

Access to Funds

One of the most helpful features of the Roth IRA is that, for non-qualified distributions, original contributions are returned first, not the earnings. Your contributions are not subject to taxation or the IRS 10% penalty. In plain language, you can always get back your contributions both tax-free and IRS penalty free, for any reason.

Required Distributions

Unlike a Traditional IRA, you are never required to take distributions, at age 72 or at any other age.

Contribution Deadline

IRAs for the taxable year can be opened and funded at any time between January 1 and the date the tax return is due, excluding extensions. For most people, this means that you can fund a 2020 IRA from January 1, 2021 until the tax filing deadline for 2021.

Retirement Security

Today there are many great investment options. Take a look and see which of these IRA and savings options fit your circumstances best.

  • Tax-free Roth IRA (funded with after-tax money, you pay NO taxes on the earnings even at distribution)
  • Fully deductible Traditional IRA (you pay taxes on contributions and earnings when you take out the money at retirement)
  • Non-deductible Traditional IRA (you pay taxes on only the earnings at distribution)
  • Coverdell Educational Savings Account to help a child pay for higher education expenses

Then contact our Member Contact Center, (316)722-3921, ext. 202, to open your IRA account, or with any questions that you have about your retirement planning.

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