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Principles of Risk Management and Insurance, 13th Edition by Michael McNamara, George E. Rejda

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Individual Retirement Accounts

An individual retirement account (IRA) allows workers with taxable compensation to make annual contributions to a retirement plan up to certain limits and receive favorable income-tax treatment of such contributions. There are two basic types of IRA plans:

  • Traditional IRA

  • Roth IRA

Traditional IRA

A traditional IRA is an IRA that allows workers to take a tax deduction for part or all of their IRA contributions. The investment income accumulates income-tax free on a tax-deferred basis, and the distributions are taxed as ordinary income.

Eligibility Requirements

There are two eligibility requirements for establishing a traditional tax-deductible IRA. First, the participant must have taxable compensation during the year ...

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