As the first wave of the baby boomer generation begins to enter retirement, the focus on a comprehensive retirement plan has never been more prevalent. Most financial professionals agree that a comprehensive retirement plan should include some sort of employer-sponsored retirement plan, such as a pension plan or a 401(k). But it should also include your own personal savings plan, such as an Individual Retirement Account (IRA).
There are two major types of IRAs available. Different IRAs apply to different circumstances in your career and your financial plan. The advice of a financial professional is crucial in choosing the right one.
Recent legislation removed age limits for contributing to a Traditional IRA if you are still working. It also moved the age at which you must begin required minimum distributions to 72 (unless you had turned 70½ by Dec. 31, 2019).
There are certain withdrawals you can make from a traditional IRA without penalties, including qualified higher education expenses. One’s ability to deduct contributions to a traditional IRA from income taxes is subject to income limitations. Non-qualified withdrawals made prior to age 59½ will be treated as ordinary income and assessed a 10 percent penalty. Always check with your financial professional before withdrawing from an IRA.
Some restrictions do apply to contributions into Roth IRAs. For 2020, if you are married and file a joint tax return, you must make less than $196,000 a year to contribute up to the maximum contribution. If you are a single filer, you must make less than $124,000 a year to contribute up to the maximum contribution.
The Roth IRA and the traditional IRA both share many of the same qualities. But even the slightest differences can make all the difference in the world when deciding which IRA is best for you. There are many more details and much more information available from a financial professional. The added information can help you make the final, fully informed decision as to which IRA suits your retirement plan best.
The above material was prepared by Securities America, Inc.