January 18, 2024
One of the best ways to plan for your retirement is to contribute to an Individual Retirement Account (IRA). Contributions for all IRAs in 2023 may be made until April 15, 2024, and are limited to $6,500 ($7,500 if you’re age 50 or older), or less, if your taxable compensation for the year falls under these limits. In 2024, the annual contribution limit for both traditional IRAs and Roth IRAs increases to $7,000 for those under 50, and $8,000 for those 50 and older. Your IRA contribution may be tax-deductible. The deduction is limited if you or your spouse is an active participant in an employer sponsored retirement plan and your income exceeds certain levels. Married individuals who do not have earned income are able to contribute the maximum amount to an IRA, if their spouse has sufficient earned income to cover the IRA contribution.
Roth IRA contributions are not tax deductible but grow tax free. Roth IRA contributions may be further limited based on your filing status and income. Single filers must have a modified adjusted gross income of less than $153,000 ($161,000 in 2024) to contribute the maximum to a Roth IRA. Married filing joint taxpayers must have modified adjusted gross income of under $228,000 in 2023 ($240,000 in 2024).
Many people have questions regarding when they can access the money in their IRA accounts. In general, an individual can begin taking distributions from a traditional IRA without penalty at age 59 ½. There are certain instances when early distributions are allowed without the 10% penalty. These include college expenses, a first home purchase (up to $10,000), health insurance premiums paid while unemployed, birth or adoption expenses (up to $5,000) and others.
IRA owners are required to take distributions from their IRA based on rules that are in effect when they reach a certain age. Prior to December 31, 2022, distributions were required when the owner turned age 72. Effective January 1, 2023, IRA owners are required to begin taking distributions at age 73. Failure to take the required distribution results in a penalty of 25% of the amount required to be distributed. Roth IRAs are not subject to the required distribution rules and can continue to grow on a tax-free basis.
For more information, click here or visit us at one of our three convenient locations to talk more about IRAs today!