A traditional individual retirement account, or IRA, lets you make tax-deductible contributions. This means you can deduct the amount you contribute each year from your income taxes. In this way it differs from a Roth IRA, in which contributions are not tax deductive. With a traditional IRA, you pay tax on the amount, plus earnings, only when you begin to withdraw from the account. Since an IRA is an individual account that is not offered through an employer, you need to set up the contributions yourself.
Choose a company to invest with. Compare the fees charged by each company, the minimum contribution amounts, and the types of accounts offered. Pick the one that is the best fit for you.
Follow the company's procedures to make automatic deposits to your IRA. You can connect your bank account to the investment company so that the money is pulled from the bank to your IRA when you specify. You will need to provide the routing number for your bank and your bank account number to connect the two accounts.
Choose the frequency of the deposits and the amount to deposit. If you get paid twice a month, on the 1st and 15th, you might want to schedule IRA deposits on the 2nd and 16th of each month. The amount you decide to deposit depends on your budget and savings goals.
- As of June 2012, the yearly contribution limit for an IRA is $5,000 for people under age 50.
- The amount you can contribute pre-tax depends on your income level and whether or not your employer offers a retirement plan. Consult your investment company for more details.
- Deduct the amount you contributed for the year on form 1040 or 1040A when you file your taxes. The instructions for each form contain a worksheet that you can fill out to determine how much you are able contribute to your traditional IRA pre-tax.
Based in Pennsylvania, Emily Weller has been writing professionally since 2007, when she began writing theater reviews Off-Off Broadway productions. Since then, she has written for TheNest, ModernMom and Rhode Island Home and Design magazine, among others. Weller attended CUNY/Brooklyn college and Temple University.