Traditional IRA

    A Traditional Individual Retirement Account (IRA) is a type of retirement plan that allows an individual to make contributions that grow tax-deferred. A Traditional IRA is different from a Roth IRA in that distributions are taxed when withdrawn from a Traditional IRA. An individual’s contributions to a Traditional IRA may be tax-deductible depending on your participation in a workplace retirement plan and certain income limitations.

    Tax Features

    Traditional IRA contributions grow tax-deferred.

    Generally, Traditional IRA contributions are tax-deductible if you and your spouse are not covered by a retirement plan at work.

    Contribution Details

    For the 2016 and 2017 tax years, an individual can contribute up to $5,500 to a Traditional IRA (or 100% of earned income, whichever is less). An individual who has reached the age of 50 on or before December 31 of the year for which the contribution is made may make an additional “catch-up” contribution of $1,000 for tax years 2016 and 2017. Contributions can be made every year until the individual reaches the age of 70 ½.

    Individuals may contribute to a Traditional IRA for a specific tax year starting on January 1st of that year. The deadline to make a contribution is the due date of the individual’s return excluding extensions (usually April 15th of the following year).

    An individual may contribute to a Traditional IRA but income may limit your deduction.

    1) If you are covered by a retirement plan at work, use this table to determine if your Modified Adjusted Gross Income affects the amount of your deduction.

    For 2016:

    IF your filing status is... AND your Modified Adjusted Gross Income is... THEN you can take...
    single or head of household $61,000 or less a full deduction
    more than $61,000 but less than $71,000 a partial deduction
    $71,000 or more no deduction
    married filing jointly or qualifying widow(er) $98,000 or less a full deduction
    more than $98,000 but less than $118,000 a partial deduction
    $118,000 or more no deduction
    married filing separately* less than $10,000 a partial deduction
    $10,000 or more no deduction
    * If you did not live with your spouse at any time during the year, your filing status is considered Single for this purpose (therefore, your IRA deduction is determined under the “Single” filing status).


    For 2017:

    IF your filing status is... AND your Modified Adjusted Gross Income is... THEN you can take...
    single or head of household $62,000 or less a full deduction
    more than $62,000 but less than $72,000 a partial deduction
    $72,000 or more no deduction
    married filing jointly or qualifying widow(er) $99,000 or less a full deduction
    more than $99,000 but less than $119,000 a partial deduction
    $119,000 or more no deduction
    married filing separately* less than $10,000 a partial deduction
    $10,000 or more no deduction
    * If you did not live with your spouse at any time during the year, your filing status is considered Single for this purpose (therefore, your IRA deduction is determined under the “Single” filing status).



    2) If you are not covered by a retirement plan at work, use this table to determine if your Modified Adjustable Gross Income affects the amount of your deduction.

    For 2016:

    IF your filing status is... AND your Modified Adjusted Gross Income is... THEN you can take...
    single or head of household, or qualifying widow(er) any amount a full deduction
    married filing jointly or separately with a spouse who is not covered by a plan at work any amount a full deduction
    married filing jointly with a spouse who is covered by a plan at work $184,000 or less a full deduction
    more than $184,000 but less than $194,000 a partial deduction
    $194,000 or more no deduction
    married filing separately** with a spouse who is covered by a plan at work less than $10,000 a partial deduction
    $10,000 or more no deduction

    ** You are entitled to the full deduction if you did not live with your spouse at any time during the year.


    For 2017:

    IF your filing status is... AND your Modified Adjusted Gross Income is... THEN you can take...
    single or head of household, or qualifying widow(er) any amount a full deduction
    married filing jointly or separately with a spouse who is not covered by a plan at work any amount a full deduction
    married filing jointly with a spouse who is covered by a plan at work $186,000 or less a full deduction
    more than $186,000 but less than $196,000 a partial deduction
    $196,000 or more no deduction
    married filing separately** with a spouse who is covered by a plan at work less than $10,000 a partial deduction
    $10,000 or more no deduction

    ** You are entitled to the full deduction if you did not live with your spouse at any time during the year.

    Investment Minimums

    Minimum initial investment for a Davis Funds Traditional IRA is $1,000.

    Minimum additional investment to an existing account is $25.

    Making Distributions

    An individual may withdraw their assets from a Traditional IRA at any time. However, if the money is removed prior to age 59½, the distribution may result in a 10% early withdrawal penalty in addition to being taxed as current income. The 10% penalty does not apply to withdrawals after age 59 ½. The tax-deductible contributions in your account will also be taxable at your current rate when assets are withdrawn. Any Traditional IRA contributions that were not tax-deductible at the time of the contribution should not be taxable when withdrawn from the IRA account.  If you need to remove assets from the Traditional IRA prior to 59 ½, check to see if any of the exceptions to the penalty apply.  The following examples are exceptions to the 10% early withdrawal penalty but are not limited to:

    • Distributions due to disability
    • Distributions for first time homebuyer up to a $10,000 lifetime limit 

    Required Minimum Distributions

    Assets can not be kept in a Traditional IRA indefinitely. The assets that need to be withdrawn each year are called Required Minimum Distributions (RMD).  An individual must begin removing money from the Traditional IRA account in the calendar year they reach age 70 ½. Failing to take the minimum distribution will result in a 50% excise tax on the amount that should have been withdrawn. The RMD will still need to be withdrawn and income taxes paid on the distribution.

    Additional Information

    Please consult your tax advisor before establishing this type of account.

    Review the Davis Funds IRA Disclosure Statement and Custodial Agreement for complete Traditional Retirement Account details including fees.

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