What is an IRA?
An IRA (Individual Retirement Arrangement) is a personal savings plan that offers tax advantages for setting aside money for retirement. Some contributions to IRAs may be deducted from income. There are several types of IRA; this section discusses "traditional" IRAs.
A traditional IRA is any IRA that is not a Roth or SIMPLE IRA. Some of the features of a traditional IRA are:
For more information on all types of IRAs, refer to the Individual Retirement Arrangements (IRAs) chapter in Publication 17 and Publication 590, Individual Retirement Arrangements. For information on the types of IRAs and IRAs as a source of income, see the Retirement Income lesson.
Although contributions to a Roth IRA cannot be deducted, the taxpayer may be eligible for the retirement savings contribution credit, discussed in the lesson on Miscellaneous Credits.
Ask taxpayers about myRA accounts. A new type of savings account, myRA is designed for Americans who don't have access to an employer-sponsored retirement savings plan. Taxpayers are able to open a myRA account with as a little as $25 and contribute $5 or more every payday.
During the tax year, Fred contributed $2,200 to a traditional IRA and $1,000 to a Roth IRA. The most Fred will be able to deduct is the $2,200 contribution to his traditional IRA. He may be eligible for the Retirement Savings Contribution Credit for the Roth IRA contribution.