Individual Retirement Accounts
The Traditional IRA is available to anyone with earned income from services rendered (wages or self-employment income) and not covered by a pension plan, profit-sharing plan, 401(k), or 403(b) plan.
- Make an annual contribution to an IRA and deduct it from your gross income for the year.
- Interest earned on the IRA is tax-deferred until you withdraw from the IRA. Usually that will be when you retire and are in a lower tax bracket.
- For 2018, you can contribute up to $5,500 per year. Qualified individuals age 50 or older can contribute an additional $1,000 for a total of $6,500. You have until April 15th, or your tax-filing deadline, to make a contribution for the prior year.
- Annual contributions can be made all at once into an IRA savings account.
- Money can be withdrawn anytime after the age of 59 1/2, or if you die or become disabled. Withdrawals become taxable income. Set up monthly income checks or withdraw as needed up until age 70 1/2.
- A minimum annual distribution is required when you reach 70 1/2.
- You select primary and secondary beneficiaries who will receive the
- IRA directly in the event of your death.
- If money is withdrawn before the age of 59 1/2, a 10% premature distribution penalty will apply.
If you have money in a pension or profit-sharing plan, 401(k), 403(b), or another IRA, you can roll it into a Traditional IRA and avoid paying taxes on the distribution. The rollover must occur within 60 days of receipt of the funds.
The Roth IRA is available to anyone with earned income, even though you may be covered by a pension or profit-sharing plan, a 401(k), or a 403(b) at your workplace. A non-working spouse qualifies for a Roth IRA also. (Note: In 2018, a single taxpayer must have Adjusted Gross Income (AGI) of under $120,000 to qualify. Taxpayers filing jointly must have AGI under $189,000 to qualify.)
- Earn interest tax-free.
- For 2018, you can contribute up to $5,500 per year. Qualified individuals age 50 or older can contribute an additional $1,000 for a total of $6,500. Contributions can be made annually. You have up until April 15th or your tax-filing deadline to contribute for the prior year.
- Annual contributions can be made all at once into an IRA certificate of deposit, or through regular contributions into an IRA savings account.
- Contributions can always be withdrawn tax-free.
- Interest earned can be withdrawn tax-free after the Roth IRA Plan has existed for 5 years AND: 1) you reach age 59 1/2; or 2) you are making a first-time home purchase; or 3) you die or become disabled.
- Withdrawals are not required from the Roth IRA. The money can be passed on to your heirs tax-free.
- You select primary and secondary beneficiaries who will receive the IRA directly in the event of your death.
Converting a Traditional IRA to a Roth IRA
A Traditional IRA can be converted to a Roth IRA by paying taxes on the amount in the Traditional IRA before it is transferred into the Roth. Your money then begins earning tax-free interest and can be passed on to your heirs with no tax consequences. We recommend you seek the advice of a tax counselor before taking this step.