Otherwise known as an individual retirement account, a traditional ira is an account where you and save for your retirement. It comes with some advantages and disadvantages which you have to explore before you go start saving in this kind of retirement fund.

There are many ways to save for one’s retirement. It is very important to be well informed especially because few employers do offer retirement plans. Even in cases where it is offered corruption and mismanagement abound. It means that individuals have to be proactive in managing their retirement saving.

By choosing this retirement savings plan you make monthly or yearly contributions into an IRA account. These savings are not taxed until withdrawn. Ira contributions can be held at a bank or brokerage firm and can be invested in any choice of ventures including stocks, certificates of deposit or mutual funds. All earnings and profits will remain untaxed as long as they remain in the account.

Why Choose Traditional Ira?

The main advantage of the traditional Ira is the tax savings offered. Also the tax benefit is applied immediately in the same year of contribution. If a contributor will be at a lower tax bracket upon retirement, then the contributions will be taxed at a lower bracket upon withdrawal. This can lead to substantial savings in taxes.

Some of the disadvantages of the traditional Ira include penalties applied for early withdrawals. Contributors have to wait until the age of 70 ½ to withdraw their contributions. If they do not then half of these contributions will be confiscated by the Internal Revenue Service. The opposite of a traditional Ira, the ROTH Ira does not have any penalties on withdrawals but the contributor is taxed as soon as he sets money aside.

Another disadvantage of the traditional Ira is the 10% penalty for early withdrawal from age 591/2 . This penalty can be waived in some cases including first time home purchase, higher education expenses, medical expenses and payments to IRS among others. Otherwise one can only move money from an Ira by roll over or transfer but only for a limited period 60 days maximum. At the end of the 60 days the contributor has to rollover the money back into the account. This is the only way to keep the money from being taxed.

A traditional Ira also has contributions limits based on age, income, presence of employer plan and joint husband-wife contributions, which the Roth Ira does not have. The Roth Ira can allow those with extra income to increase their savings without the constraints of the traditional Ira.