An IRA, or individual retirement account, is one of the most popular ways to save for retirement. An IRA can be created at a bank, a brokerage firm, or a mutual fund company. IRAs differ from pensions and 401(k) plans in that individuals, not employers, typically open them.
You can deduct the money you deposit into an IRA from your taxable income, thus reducing your tax burden. This tax shelter saves many investors a great deal each year, since this portion of their income is no longer taxable.
Another tax benefit to an IRA is that as the account matures, the money remains tax deferred. Your money will only be taxed when regular retirement distribution begins. You’ll never have to pay penalties or extra taxes, unless you take money out early. This tax sheltering applies to traditional IRAs. If you invest in a Roth IRA, you may be eligible for greater tax deductions.
Who Is Eligible?
Anyone who receives earned income and is under 70 can apply for an IRA. The only issue that arises is how much of your contribution is tax-deductible each year. If you or your spouse has other retirement accounts through work, your deductibility may be restricted in certain cases. Your tax deductibility may be phased out when you reach a certain modified adjusted gross income (MAGI): if you and your spouse make between $83,000 and $103,000 and file taxes jointly; if you are single and make between $52,000 and $62,000; or if you are married, filing separately, and make between $0 and $10,000. AGI (adjusted gross income) refers to your income after allowable deductions are made; MAGI refers to your total income after some of those deductions are added back on.
Is an IRA for you?
An IRA is a good option for you if you do not have other retirement plans through your employer, or if you want to supplement those plans. There is no such thing as over-planning for retirement.
Latest posts by Alan Augulis, Estate Planning Attorney (see all)
- Trust Administration 101 for the First-Time Trustee - August 23, 2018
- Do I Need a Medicaid Planning Attorney? - June 11, 2018
- Can an Incapacity Planning Attorney Help Me Plan for the Possibility of Alzheimer’s? - May 1, 2018