Saving for Your Retirement: The Traditional IRA

Family child care providers have a variety of retirement plans to choose from when contributing money towards their retirement.

The traditional IRA (also called a regular IRA) is probably the most well-know retirement plan. Here are its main components:

Eligibility: You are probably eligible for a traditional IRA whether or not you are married and have a spouse who has an employer retirement plan. Each year the IRS sets new eligibility limits (www.irs.gov).

Contribution limits: You may contribute up to a maximum of $6,000 of your profit each year, or up to $7,000 each year if you are age 50 or older. (These are 2021 limits and they are likely to rise in the future.) You don't have to contribute the maximum each year. Some investment funds allow you to set up an IRA for a small amount of money.

Deadlines: You can set up a traditional IRA before April 15th, or before October 15th if you file a tax extension. The sooner in the year you contribute to your IRA, the more interest it will earn.

Tax deductibility and deferral: Contributions to a traditional IRA are tax deductible. When you withdraw money after age 59 1/2, you will owe income tax on both your contributions and your earnings on your investment.

I will discuss other IRA options in future articles: the Roth IRA, SIMPLE IRA, SEP IRA, and the self-employed 401(k) plan.

Image credit: https://www.moneycrashers.com/traditional-ira-retirement-account/

I've written much more about IRAs in my book Family Child Care Money Management and Retirement Guide.