Types of IRAs

Traditional

The traditional IRA, created in 1974, is the granddaddy of them all. Here are the basic rules:

• If you have earned income and are under 70½, you may contribute to a traditional IRA. There is no upper income limit.
• You may contribute up to $2,000 a year. This limit applies to all your IRAs combined.
• Contributions for a given tax year must be made by the tax filing date (excluding extensions) for that year.
• You can establish a new IRA up to the tax filing date (excluding extensions) for that year.
• You may make spousal contributions of up to $2,000 a year to your IRA based on your spouse's earned income, even if you have little or no earned income yourself.
• If you participate in an employer-sponsored retirement plan, your contributions to a traditional IRA may not be tax-deductible. This depends on your income.
• You pay tax on the interest you earn, and on your deductible contributions, only when you withdraw the money. Your contributions and earnings benefit from compound interest.
• You must begin taking minimum distributions at age 70½.

Conduit IRA: A conduit IRA is a traditional IRA that holds only money from your 401(k) or other employer-sponsored retirement plan, while you wait to roll it over into a new employer-sponsored retirement plan. Think of it as a holding tank.

As long as the money in the conduit IRA remains "untainted" by other contributions (i.e. it continues to contain only money from the employer-sponsored plan and earnings on that money), you may roll it over into another employer-sponsored plan. There is no time limit. If you mix it with other IRA money, however, you lose this portability feature. If you never move the money into a new 401(k) plan, the conduit IRA follows the same rules as any other traditional IRA.