A traditional IRA is a type of retirement plan that has been in existence since 1975. Traditional IRAs offer tax-deferred earnings, and the possibility for tax-deductible contributions. These tax advantages make the traditional IRA a powerful tool in creating a balanced, long-term savings plan.

You can contribute to a traditional IRA if you earn compensation and you will not reach age 70½ by the end of the year. If you file a joint tax return, you can treat your spouse's compensation as your own (except your combined contributions cannot exceed your combined compensation). All earnings in the traditional IRA are not taxed until they are withdrawn. The ability to defer taxes on the earnings, and to withdraw in a year when you may be in a lower tax bracket, can mean more after-tax dollars for your retirement.

If you meet the eligibility tests described above and you are under age 50, you can contribute up to $4,000 annually for 2006 and 2007, and up to $5,000 for 2008 through 2010. If you have attained age 50 by the end of the year, then your limits are $5,000 for 2006 and 2007, and $6,000 for 2008 through 2010 and 2007.

Yes, your participation in an employer-sponsored retirement plan will not affect your ability to contribute to a traditional IRA (assuming age and compensation requirements are met). However, higher-income earners will lose their ability to deduct their traditional IRA contributions if participating in an employer-sponsored plan.

Yes, you can. However, the limits on annual contributions apply to any combination of traditional and Roth IRA contributions that you make for the year.

If you are single, or married and neither spouse is an active participant in a qualified retirement plan, your traditional IRA contribution is deductible regardless of income. If you or your spouse is an active participant, you may deduct contributions if your income is below certain limits. If you have questions about your specific tax situation, please consult your tax advisor for an interpretation of how these rules apply to you.

Yes, you will owe income taxes when you withdraw from your traditional IRA. However, if you make nondeductible contributions to a traditional IRA, a portion of each withdrawal will be treated as the nontaxable return of these contributions.

In general, you must pay a ten percent tax on early distributions or withdrawals before age 59½. But the early distribution tax does not apply in the following situations:

You must begin taking required minimum distributions from your traditional IRA at age 70½. The minimum distributions each year will be computed using an IRS formula. You are allowed to delay the first year's payment until April 1 of the following year, but you will receive two year's worth of payments in your 71½ year if you choose to delay.

If you are entitled to receive an eligible rollover distribution from an employer's plan, you can continue deferring taxes by moving the money into a traditional IRA. The best way to do this is to inform the plan administrator that you want the funds moved directly to your traditional IRA in a direct rollover. The plan administrator will inform you before making an eligible rollover distribution.

You can move money from your traditional IRA to a Roth IRA if your adjusted gross income for the year is $100,000 or less, and you are either single or married filing a joint tax return. In the year you convert, you will have to pay federal income taxes on the amount that you move, except the portion that is treated as the return of your nondeductible contribution. You may also be subject to state income taxes.

You may designate one or more beneficiaries to receive your IRA after your death. If your spouse is your beneficiary; he or she may directly transfer your traditional IRA to his or her own IRA tax-free. In addition, all beneficiaries have the option of taking a lump-sum payment, and in most cases, they will be able to take periodic payments over a number of years. Any tax-deferred money in your traditional IRA at the time of death will be taxed when it is distributed to your beneficiaries.

Not intended as tax advice. Please consult a tax professional.