Individual Retirement Accounts (IRAs)
- March 8, 2021
- By: Greenpath Financial Wellness
An individual retirement account or IRA is an investment account that enables individuals to save for retirement. There are many types of IRAs that might work for your financial situation.
- Traditional IRA: A traditional IRA can be a great way to build your retirement nest egg while enjoying tax benefits. Contributions may be tax-deductible depending on your income, tax filing status and coverage by an employer-sponsored retirement plan. You won’t pay tax on your earnings until you make withdrawals.
- Roth IRA: Contributions to a Roth IRA are not tax-deductible. However, your earnings grow tax-deferred and withdrawals can be made tax-free.
- Rollover IRA: If you have assets in an old employer-sponsored retirement plan, it’s simple to move them into a Rollover IRA of your choice. You keep the tax benefits and get to choose how your money is invested.
This material is summarized from IRS web resources related to IRA contribution limits. The following is intended as a high-level summary for informational purposes only.
$6,000 ($7,000 if you’re age 50 or older), or
If less, your taxable compensation for the year
The IRA contribution limit does not apply to:
Roth IRA Contribution Limit
In addition to the general contribution limit that applies to both Roth and traditional IRAs, your Roth IRA contribution may be limited based on your filing status and income.
For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs.
If you file a joint return, you may be able to contribute to an IRA even if you didn’t have taxable compensation as long as your spouse did. Each spouse can make a contribution up to the current limit; however, the total of your combined contributions can’t be more than the taxable compensation reported on your joint return.
See full details about IRA contribution limits from IRS web resources.
Required Minimum Distributions
This material is summarized from IRS web resources related to IRA Required Minimum Distributions. The following is intended as a high-level summary for informational purposes only.
According to the IRS, Required Minimum Distributions (RMDs) generally are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches 72 (70 ½ if you reach 70 ½ before January 1, 2020), if later, the year in which he or she retires.
However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin once the account holder is age 72 (70 ½ if you reach 70 ½ before January 1, 2020), regardless of whether he or she is retired.
Retirement plan participants and IRA owners, including owners of SEP IRAs and SIMPLE IRAs, are responsible for taking the correct amount of RMDs on time every year from their accounts, and they face stiff penalties for failure to take RMDs.
The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) became law on December 20, 2019. The Secure Act made major changes to the RMD rules. If you reached the age of 70½ in 2019 the prior rule applies, and you must take your first RMD by April 1, 2020. If you reach age 70 ½ in 2020 or later you must take your first RMD by April 1 of the year after you reach 72.
The material presented here is for informational purposes only. Learn more about RMDs via the IRS. https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions
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