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Follow on Google News | A Closer Look at Traditional IRAs and Roth IRAsWant to learn more about the differences between traditional and Roth IRAs, and the benefits of each? Check out this article.
By: Edward Jones Can I contribute to an IRA? Traditional IRA: If you have earned income, you’re generally eligible to contribute. Even if you don’t have earned income, you can still contribute if your spouse does and you file your taxes as Married Filing Jointly. However, in either case, you must stop making contributions the year you reach age 70½. Roth IRA: If you have earned income, or your spouse does and you file your taxes as Married Filing Jointly, you can contribute at any age as long as your modified adjusted gross income (MAGI) falls below or within certain limits. For more information, visit www.irs.gov or talk to your tax professional. How much can I contribute? You can contribute up to the following amounts annually to one or a combination of IRAs for 2014 and 2015: Contribution limit $5,500 Catch-up contribution (age 50 or older) $1,000 Are my contributions tax-deductible? Traditional IRA: In many cases, your contributions may be tax-deductible for the tax year in which you make them. In other words, your contribution is made pretax. Any growth to your investments inside the IRA is tax-deferred. When you begin to take money out of your IRA, these distributions will be taxed at your ordinary income tax rate. Roth IRA: You make contributions with after-tax money, so you can’t take a current tax deduction. But since you’ve already paid taxes on your contributions, withdrawals from a Roth are tax-free. Some restrictions apply, so be sure to check with your tax professional. Can I withdraw money from my IRA? Traditional IRA: If you take out money before you turn 59½, you will pay ordinary income taxes as well as a 10% penalty. There are exceptions to this rule, so talk with your tax professional or visit www.irs.gov. If you withdraw money after age 59½, you pay the ordinary income tax but not the penalty. You also must start taking required minimum distributions when you turn age 70½. Roth IRA: You can withdraw any money you contributed without taxes or penalties.* Then, once you reach age 59½ and have held the Roth for five years, you can withdraw earnings tax-free. If you take out earnings before then, you may have to pay income tax or a 10% early withdrawal penalty. For more information, visit www.irs.gov or consult your tax professional. Your Edward Jones financial advisor can work with you and your tax professional to tailor a retirement strategy that helps you get on track with your retirement goals. For more information, contact your financial advisor today. *If you fund your Roth IRA through a rollover or conversion, the tax consequences may be different. Edward Jones, its employees and financial advisors cannot provide tax or legal advice. Please consult your attorney or qualified tax advisor regarding your situation. End
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