Traditional IRA defined.
A traditional IRA is any IRA that is not a Roth, SIMPLE, or education IRA.

Interest earned.
Although interest earned from your IRA is generally not taxed in the year earned, it is not tax-exempt interest. Do not report this interest on your tax return as tax-exempt interest.

Penalty for failure to file Form 8606.
If you make nondeductible contributions to a traditional IRA and you do not file Form 8606, Nondeductible IRAs, with your tax return, you may have to pay a $50 penalty.

Contributions to spousal IRAs.
In the case of a married couple filing a joint return, up to $2,000 can be contributed to IRAs (other than SIMPLE and education IRAs) on behalf of each spouse, even if one spouse has little or no compensation. This means that the total combined contributions that can be made on behalf of a married couple can be as much as $4,000 for the year. See Spousal IRA limit, under How Much Can Be Contributed? and under Can I contribute to a Roth IRA for my spouse? under Roth IRAs, later.

Employer contributions under a SEP plan are not counted when figuring the limits just discussed. SEP plans are discussed in Publication 590.

Spouse covered by employer plan.
If you are not covered by an employer retirement plan, you may be able to deduct all of your contributions to a traditional IRA, even if your spouse is covered by a plan

See How Much Can I Deduct?, later.

No additional tax on early withdrawals for higher education expenses.
You can take distributions from your traditional IRA for qualified higher education expenses without having to pay the 10% additional tax on early withdrawals.

For more information, see Publication 590, Individual Retirement Arrangements (IRAs) (Including Roth IRAs and Education IRAs).

No additional tax on early withdrawals for first home.
You can take distributions of up to $10,000 from your traditional or Roth IRA to buy, build, or rebuild a first home without having to pay the 10% additional tax on early withdrawals.

Roth IRA.
You may be able to establish and contribute to a nondeductible tax-free individual retirement plan called a Roth IRA. You cannot claim a deduction for any contributions to a Roth IRA. But, if you satisfy the requirements, all earnings are tax free and neither your nondeductible contributions nor any earnings on them are taxable when you withdraw them. See Roth IRAs, later.

Education IRA.
You may be able to make nondeductible contributions of up to $500 annually to an education IRA for a child under age 18. Earnings in the IRA accumulate free of income tax. See Education IRAs, later.

Previous | Next

Publication 17 | 1999 Tax Year Archives | Tax Help Archives | Home