Posts Tagged ‘Traditional IRA’

Don’t Let These IRA Myths Deter Your Savings

Monday, April 24th, 2017

How do myths about Traditional or Roth IRAs get started? Typically, you’ve heard myths from an acquaintance who knows someone who knows someone. That person then tells you that they once had either a bad advisor, or had a bad experience, and there starts a rumor/myth. Let’s move past all of that, and get to the truth of the matter.

I make too much/too little to make contributions

Even if you’re only able to contribute $50 a month to your retirement account, it’s SO much better than nothing. Starting to save in your early 20s means you can set aside less and come away with more once you reach retirement age. Set goals for yourself, and make a decision today that will impact your future.

It’s true that if you make $196,000, or more if you’re filing jointly (married), you cannot fund a Roth IRA. But you will, however, be able to fund a traditional IRA with no problem. But there’s a caveat that can make the rules more confusing. Your household income, as well as whether you or your spouse have access to a workplace retirement plan, like a 401K, can change eligibility. These factors impact how much of your traditional IRA contribution the IRS will allow you to deduct from your taxes.

All IRAs are the same

With a traditional IRA, the money you contribute into your account is contributed in tax-free. Once you reach retirement, your withdrawals are taxed as ordinary income.

Roth IRAs basically work the opposite way. Your contributions are made with after-tax dollars, but withdrawals can be made tax-free in retirement. The annual contribution limit for both traditional and Roth IRAs in 2017 is $5,500 if you’re under 50, or $6,500 if you’re 50 or older.

However, as stated above, not everyone can open a Roth IRA. If you earn more than $133,000 as a single tax filer this year, or more than $196,000 as a married couple filing jointly, you won’t be eligible to contribute to a Roth.

I’m too young to start saving for retirement

Impossible. The sooner that you start saving for retirement, the more interest you’ll accrue over your lifetime, also referred to as compound interest. Starting retirement savings in your 20s gives you a huge advantage over those who start a decade later. Again, due to compound interest. If you’re able to save just $2,000 a year beginning at age 25, (about $166 a month), you will have saved more than $500,000 by retirement age. If you start saving ten years later in your thirties, you will save less than $250,000 saved. Kind of speaks for itself. Start as early as possible.

Your Big Question About IRA Distributions and Social Security Benefits

Monday, November 23rd, 2015

ira dist and SS

Q: Is the income I receive from my IRA distribution included in the calculation that determines how much of my social security benefits will be taxed?

A: Generally, yes. If the IRA distribution you receive is taxable, like with a traditional IRA, and not a return of your previous non-deductible contributions, it will be included as part of your Adjusted Gross Income (AGI) on your tax return. The amount of your social security benefits that is taxable is determined by calculating your combined income. To find your combined income amount, add up your Adjusted Gross Income, plus your nontaxable interest, plus 50% of your social security benefits.

If your IRA distribution is taxable like with a traditional IRA, it should be included in your Adjusted Gross Income, so that it’s easy to determine what portion of your social security benefits are taxable.

If you know your federal tax filing status and your combined income, you can use the following guidelines from the Social Security Administration to see how much of your benefits are taxable.

If you file a federal tax return as an individual and your combined income is the following:

  • Between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
  • More than $34,000, up to 85 percent of your benefits may be taxable.

If you file a joint return, and you and your spouse have a combined income that is:

  • Between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
  • More than $44,000, up to 85 percent of your benefits may be taxable.

If you are married and file a separate tax return, you probably will pay taxes on your benefits.

For more information about calculating your “combined income” or the taxation of social security benefits visit the Social Security Administration’s website at www.ssa.gov.

What is an IRA? Roth or Traditional: Which is Better

Monday, November 2nd, 2015

roth or traditional

An Individual Retirement Account, or IRA, is an account that payments are made into bi-monthly or monthly, earnings such as interest, dividends or capital gains are accumulated, investments can be made with it through a self-directed IRA, and it is meant to supplement income after a person is retired. The account, depending on the type, whether Roth or Traditional, can be tax-free or tax-deferred.
If you’re new to the retirement planning world, and all of this new information is confusing, hang tight, we’ve got you covered.

Click image to enlarge

What is an IRA - Infographic