The New Year is already underway, which means it is tax season again. With that in mind, I wanted to share some simple IRA facts with you.<\/p>\n
The definition:\u00a0 An individual retirement account (IRA) is a tax-advantaged investing tool that individuals use to earmark funds for retirement savings.<\/p>\n
My definition: \u00a0A traditional IRA is a way to save for retirement with tax-advantages.<\/p>\n
Here are some facts to consider:<\/p>\n
In order to contribute to a traditional IRA, you must have earned income. Earned income comes in the form of wages, salary, commissions, tips, bonuses, self-employed income and even alimony.<\/p>\n
Earned income is\u00a0not<\/em>\u00a0investment earnings such as dividends or interest; nor is it proceeds from social security. You need\u00a0earned<\/em>\u00a0income to contribute to an IRA.<\/p>\n What if your spouse doesn\u2019t work and therefore has no income? \u00a0If you are married and file jointly\u00a0and<\/em>\u00a0one of you has earned income, then you are both eligible to contribute to an IRA. Still, your household income must meet or exceed the total amount you want to contribute. For example, if you contribute $5,000 to an IRA for each spouse, then your household income must be at least $10,000.<\/p>\n For the year 2020 the contribution limit per person is $6,000 dollars. If you are age 50 or older then you can contribute another $1,000 for a total of $7,000. This is meant to help older investors \u2018catch up\u2019 on their contributions.<\/p>\n With a traditional IRA, your contributions are called pre-taxed dollars. This means that your $5,000 contribution to your IRA can be used as a tax deduction. However, there are limitations regarding being fully tax-deductible. For example, if you and\/or your spouse participate in an employer-sponsored retirement plan (like a 401(k) or 403(b)) and your adjusted gross income exceeds certain thresholds, your contribution may be only partially or not tax deductible. \u00a0Here is a sample of the income limits:<\/p>\n There are several reasons to own an IRA. First, you can grow your money tax deferred. This means you are deferring the taxes you would otherwise owe in the year you contribute. But you must keep in mind that somewhere down the line you will have to pay taxes\u00a0at the then current rates\u00a0<\/em>on what you have saved. You will be faced with RMD\u2019s (Required Minimum Distributions) when you turn 72 years of age. Uncle Sam will not forget that you deferred and will expect his portion when you withdraw! So, you need to think long-term vs short-term on whether this is a benefit (the tax deferral) to you.<\/p>\n Another thing to consider is the new SECURE Act. With the recent changes to qualified accounts, your children (beneficiaries) must now liquidate an inherited IRA over a much shorter (10-year) period instead of just taking the RMDs based on their life expectancies as was previously required. This is new for 2020 and should be taken into consideration before making contributions.<\/p>\n You should speak with your financial professional to see if owning a traditional IRA is a benefit to you before jumping in. Please reach out to us with any questions you may have.<\/p>\n","protected":false},"excerpt":{"rendered":" A traditional IRA is a way to save for retirement with tax-advantages.Limits to Contribution<\/h4>\n
Tax Advantages<\/h4>\n
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Other Considerations<\/h4>\n
\nHere are some facts to consider.<\/p>\n","protected":false},"author":6,"featured_media":2378,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[1262,1265,1266,1257,1258,1264],"tags":[414,415,65,199,416,417,418,419,420,202,13,421,422,180,16,423],"yoast_head":"\n