Anyone younger than 70 ½ years of age who has earned income from compensation or self-employment is eligible to open an Individual Retirement Account, commonly referred to as a Traditional IRA. The Traditional IRA has significant tax benefits, including the ability to deduct the amount of your contributions from your income and to defer the earnings on your investments within the IRA until you withdraw them upon your retirement. From many people, regularly adding money to a Traditional IRA is one part of a healthy financial program.
How to Add Money to a Traditional IRA
Contact the Custodian or Trustee of your Individual Retirement Account. Ask the Custodian or Trustee how frequently you can add funds to your account. Determine whether there is a specific time frame in which your account will accept additional contributions, or if you may add funds at any time, subject to maximum contribution limits.
Determine from your account’s Custodian or Trustee what form of payment they will accept. Contributions must be in the form of money which may include cash, personal check, or money order depending on rules of the financial institution which holds your account. You may not contribute property, however you may be able to roll certain assets from a previous retirement account into your current IRA. Consult your Custodian or Trustee to insure you do not take possession of these funds and thereby incur a tax liability.
Deliver the funds you wish invested in your IRA to your account’s Custodian or Trustee by the agreed upon method which may include by mail, in person, or by online funds transfer. Instruct your account’s Custodian or Trustee regarding how you wish your contribution to be invested.
Remember to enter your Traditional IRA deduction on line 32 of IRS Form 1040. If you file IRS Form 1040A enter your deduction on Line 17. You cannot claim the Traditional IRA deduction on IRS Form 1040EZ.
- You can make contributions to your Individual Retirement Account for the tax year up to the due date for filing your return, generally April 15.
- You can have all or a portion of your Income Tax Refund paid directly to your Traditional IRA. See IRS Form #8888 for details.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.