BY JENNI RILEY, MBA, FPQP™
Individual retirement accounts (IRAs) are savings and investment accounts with special tax breaks. Here are some distinctions between Traditional and Roth IRAs.
Traditional IRA: Contributions to a traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status, and other factors. Account-holders may contribute up to $6,000 per year ($7,000 if you are 50 years or older). A taxpayer’s annual income does not limit contributions.
Roth IRA – Like Traditional IRAs, contribution limits apply to Roth IRAs. With a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax-deductible, but distributions will ultimately be income tax-free if certain conditions are met. Roth IRAs do not require withdrawals until after the death of the owner.
Employer-sponsored IRA plans have different criteria and features.
Simple IRA Plan: Ideal for employers with 100 or fewer employees. Employees may defer up to $13,500 of their salaries ($16,500 for those 50 and older.) Employers may match employee contributions or contribute 2% of staff compensation regardless of workers’ contributions.
SEP IRA: A Simplified Employee Pension Plan IRA can be a fit for self-employed individuals who want to minimize paperwork and plan costs while amplifying their retirement savings. The employer makes all contributions. Salary deferrals are not allowed.
RMDs or Required Minimum Distributions must be taken from a Traditional IRA, SEP IRA, SIMPLE IRA, or retirement plan account in the year you reach 72 (70 1/2 if you reach 70 1/2 before January 1, 2020).
Withdrawal of pre-tax contributions or earnings will be subject to ordinary income tax and, if taken before age 59 1/2, may be subject to a 10% federal tax penalty. RMDs are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation.
Jenni Riley, FPQP™ is a Financial Paraplanner Qualified Professional™ and Director of Operations with HAZLETT WEALTH MANAGEMENT, LLC, which is independent of Raymond James and is not a registered broker/dealer. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. 675 Sun Valley Road, Suite J1 + J2 Ketchum, Idaho 83340 208.726.0605. HazlettWealthManagement.com