Retirement Investing: Charles Schwab: Traditional IRA

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Required Minimum Distributions RMD Calculator Contribution Rules Withdrawal Rules

Traditional IRA guidelines

Investing in a tax-advantaged account, such as a Traditional IRA, can be an important part of your retirement planning strategy. However, it's important to be aware of the restrictions on contributions and withdrawals so you can avoid any penalties.

Contributing to a Traditional IRA

By making a Traditional IRA part of your savings strategy, you can take advantage of:

Immediate tax benefits, if your contributions are tax-deductible.
Tax-deferred growth (you won't pay taxes on contributions and earnings until you take out your money in retirement).

While there are no income limits for contributing to a Traditional IRA, your contribution may be tax-deductible based on how much you earn or if you participate in your employer's retirement plan. Once your account is open, you can contribute as often as you like (up to the yearly maximum) from January 1 through the tax-filing deadline for the year (generally April 15, excluding extensions). Additionally, you can simultaneously contribute to an employer-sponsored retirement plan or a Roth IRA if you meet the income requirements.¹
For 2009 and 2010, the maximum allowable contribution is $5,000, or $6,000 if you're age 50 or over. To determine how much you can contribute to a Traditional IRA, try our interactive IRA Comparison Tool or view income charts for details.

Withdrawing from a Traditional IRA

Once you've reached age 59½, you can withdraw from your Traditional IRA without restrictions or penalties. However, you'll need to keep in mind that:

Any earnings you withdraw will be subject to ordinary income taxes.
Once you reach age 70½ , you’ll be required to take yearly withdrawals from your Traditional IRA. These mandatory withdrawals are called Required Minimum Distributions (RMDs).

Try our RMD Calculator to estimate your mandatory IRA withdrawals in a few simple steps.

What if I need my money before I turn age 59½ ?

Taking money from your Traditional IRA before you reach age 59½ is considered an early withdrawal, which means it could be subject to taxes as well as a 10% federal penalty. A state tax penalty could also apply.

However, you may be able to avoid early withdrawal penalties if you use the funds for:

A first-time home purchase
Qualified educational expenses for you or your immediate family
Non-reimbursed medical expenses
Health insurance premiums for yourself or your immediate family
Substantially equal periodic payments (you elect to receive your funds on a regular distribution schedule)

You can also take out your money without taxes or penalties if you become disabled.

For more information, talk to a Schwab investment professional at 866-855-5636 or speak with a tax professional.

1. You may contribute simultaneously to a Traditional IRA and a Roth IRA (subject to eligibility) as long as the total contributed to all (Traditional and Roth) IRAs is no more than $5,000 ($6,000 if you are age 50 or older) for tax years 2009 and 2010.

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, Financial Planner or Investment Manager.

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