- Invest and Plan
- Financial Strategy
- Investment Strategy
- IRA Options
IRAs
An IRA is an investment account that belongs to you, to which you contribute. It can consist of stocks, mutual funds, bonds, annuities, certificates or other investment products. Gains grow tax deferred until they’re distributed. In some cases, they’re not taxed at all. Explore the features of both a Roth and Traditional IRA to see if an IRA is right for you.
IRA Options
Traditional
A sound way to save for retirement.
Roth
Earnings grow tax-deferred, withdraw at retirement tax-free.
Inherited
When IRA assets pass to your beneficiaries.
Traditional
Potentially reduce the taxes you owe today and grow your money tax-deferred.
Meet the eligibility requirements and you can deduct contributions to a traditional IRA from your federal taxable income, as well as from your taxable income in most states. This up-front tax break reduces the current income taxes you owe. Also, money in a traditional IRA accumulates tax-deferred. You’ll eventually have to pay taxes, but not until you make a withdrawal.
- You can contribute to your IRA any time during the year or by the due date for filing your tax return – always April 15 – extensions do not apply.
- If you make early withdrawals before age 59 1/2, you’ll owe a 10% tax penalty on the taxable portion of the distributions. You’ll also owe income tax on your earnings and on any deductible contributions you made.
- There are exceptions to the early withdrawal penalties: if you meet the IRS definition of “disabled,” have high unreimbursed medical expenses, or need to pay certain qualified educational expenses.
- By April 1 of the year following the year in which you reach age 73, you must either withdraw your entire balance or start taking required minimum distributions each year.
*Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
Roth
Earnings grow tax-deferred, withdraw at retirement tax-free.
Roth IRA earnings grow tax-deferred, and for qualified distributions, your earnings can also be withdrawn tax-free. But there are rules, and they can be complex:
- Roth IRA contribution limits vary by tax year, income level and tax filing status (single, married filing jointly), so you may want to work closely with an advisor.
- You can contribute to your IRA any time during the year or by the due date for filing your tax return – always April 15 – extensions do not apply.
- If you need to dip into your nest egg early, Roth rules differ and can be complex. Unlike a traditional IRA, you can withdraw up to the total amount of your annual contributions at any time, for any reason, with no federal taxes or penalties due.
- Another advantage Roth IRAs have over traditional IRAs is there are no required minimum distributions during an owner’s lifetime. Minimum distribution rules, however, do apply after the death of the owner.
*A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
Inherited
One lump sum can provide you steady income for life.
Your IRA assets pass to your beneficiaries, the individuals you’ve named to receive them. When they do, they receive an “Inherited IRA.” While your name will remain on the account, the tax code allows certain types of beneficiaries to take distributions from an inherited IRA over their own lifetime.
- Rules for inherited IRAs vary depending on the type of beneficiary you name.
- Spouse beneficiaries have options for an inherited IRA that isn’t available to other types of beneficiaries.
- Rules for stretching distributions from an inherited IRA also depend on whether the original IRA owner dies before or after their beginning date for required minimum distributions.
*“Stretch IRA” is a marketing term implying the ability of a beneficiary of a Decedent’s IRA to withdraw the least amount of money at the latest allowable time in order to maintain the inherited IRA assets for the longest time period possible. Beneficiary distribution options depend on a number of factors such as the type and age of the beneficiary, the relationship of the beneficiary to the decedent and the age of the decedent at death and may result in the inability to “stretch” a decedent’s IRA. Illustration values will greatly depend on the assumptions used which may not be predictable such as future tax laws, IRS rules, inflation and constant rates of return. Costs including custodial fees may be incurred on a specified frequency while the account remains open.
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