TRADITIONAL IRA ANNUITY

I. Income tax treatment in a Traditional IRA is subject to specific IRS code regulations.

A. Contributions (deposits) are made with pre-tax funds or after-tax funds, depending on the individual’s specific situation.

B. Any gain is tax-deferred until withdrawal and taxed at the individual’s current tax rate at time of distribution.

C. Funds in an IRA can be transferred to another funding vehicle. No tax will be incurred if the special transfer or rollover procedures are followed.

D. A 10% IRS penalty is due for early withdrawal (before age 59 1/2), with certain exceptions to this rule.

E. Required minimum distributions must start before age 70 1/2.

II. There are limitations to contributions to a Traditional IRA.

A. Contributions must derive from earned income only.

B. The individual contribution is limited to the greater of $6,000 (an additional $1,000 is allowed for people over the age of 50) or 100% of earned income. These amounts can be adjusted annually due to inflation.

C. Contributions may or may not be tax deductible depending upon income amount for that year as determined by the AGI (Adjusted Gross Income), or because of participation in another qualified plan.

Spousal Traditional Ira

Special Spousal Traditional IRA Limitations

I. If one spouse has little or no income, that spouse may “borrow” compensation from his or her spouse for the purpose of enabling their own contribution to an IRA. Generally, the “borrowing” spouse can make a contribution to their IRA up to the maximum amount allowed, but the contribution cannot exceed the other spouse’s compensation less their IRA or ROTH contribution.

A. A spousal Traditional IRA requires that the couple file jointly.

B. The spouse can have no compensation in that year or less than would be needed to support the entire contribution.

C. Depending upon income limitations, the non-working spouse may be eligible for an IRA utilizing the tax deductible benefit, even if the working spouse is not eligible for the tax deductible benefit.

Current tax laws, which may or may not be applicable at future dates, provide that any distributions are includable in taxable income to the extent of earnings in the contract. Further, a 10% penalty tax may be applicable to premature distributions of an annuity to the extent the payment is includable in taxable income. Under current law, any distribution before age 59 1/2 will generally be subject to the penalty tax. The tax situation of an individual will be effected to the extent that taxes and penalties are payable. The individual should consult his or her tax adviser.