IRA's (Individual Retirement Accounts)

IRA catch up

-for people 50+ -can contribute an extra $1,000 for 2019

if the owner of a Roth IRA dies

-the beneficiary must deplete the account over his or her expected lifetime, or 5 years, whichever is greater. -The big advantage to the beneficiary is that the distribution is still tax-free!

Distributions from roth ira is not taxable, as long as..

-the investment has been held for 5 years -and the person is at least age 59 ½.

When distributions are taken, the portion representing accumulated earnings and tax-deductible contributions is

100% taxable.

What age can you contribute to an IRA until?

70 & 1/2

Payout Must Begin April 1st Of Year

After Turning 70 ½ RMDs

when must the RMD be taken? If the amount is not distributed?

December 31st of each year. If there is a withdrawal shortfall, a penalty tax of 50% is applied to the amount not distributed. (There's an incentive to take the Required Minimum Distribution!)

RMD from an IRA comes from

IRS life expectancy tables.

Front Loaded tax benefit of Traditional IRA

In a Traditional IRA, a tax deduction is permitted up-front (unless one's income is too high); so there is taxation at the back.

Can high income earners use a roth ira?

NO If the maximum contribution is made to a Traditional IRA; then a contribution cannot be made to a Roth IRA (and vice-versa) Contributions of high income persons are subject to phase-out. The phase-out range starts for individuals with income above $122,000, with full phase-out at $137,000. The phase-out range for couples is above $193,000 to $203,000.

Roth IRAs are not subject to

RMDs at 70 1/2.

ROTH IRA

The same contribution amount as for a Traditional IRA can be contributed by an individual into such an account, but no tax deduction is permitted. If the monies are kept in the account for 5 years, then all withdrawals can be taken without any tax due at that point (in a Traditional IRA, tax is due when distributions start).

The phase-out ranges for deductible IRAs are:

Year 2019 Single Return $64,000 - $74,000 Joint Return $103,000 - $123,000 For example, in 2019, if an individual earns $80,000, and is included in another retirement plan, then this person cannot take a tax deduction for an IRA contribution.

If contributions are made in excess of the allowed amount,

a 6% annual penalty tax is imposed on the excess amount for as long as it stays in the account.

The annual contribution limits for an individual are..

are the lesser of 100% of income or $6000 for 2019,

married couple is filing a joint tax return can they contribute how much for the year?

double ($12,000) or $6,000 each

Distributions Prior To Age 59 ½ Without Penalty

if the person dies or is disabled before age 59 ½, distributions can be taken without penalty. In addition, distributions prior to age 59 ½ without the penalty tax (but regular tax is still due) for qualifying education expenses such as tuition, room, board and books; and the first $10,000 of first time home purchase expenses.

What is the date that all contributions for the year must be made by in both a traditional IRA and a roth IRA?

must be made by April 15th of the following year (tax filing date) - without any permitted extensions.

Backloaded tax benefit of Roth IRA

no deduction is permitted up-front; so there is no taxation at the back.

Roth IRAs can be contributed to

past age 70 1/2 as long as individual is still working.

Contributions for IRAs are based on

payments received for rendering personal services. Income received from investments is not counted. Contributions for each tax year can be made until April 15th of the following year.

If a person has participated in another pension plan that has been terminated, or that person leaves employment and receives his pension benefit as a lump-sum, he can

roll-over" the proceeds into an IRA without dollar limit. The rollover must be completed within 60 days of the distribution date. Thus, that person's retirement funds continue to build up tax deferred. If an IRA rollover is not made, the distribution amount is taxable.

Permitted investments in IRAs

stocks, bonds, unit trusts, mutual funds, government securities, annuities, and gold and silver coins and bullion

Withdrawals from the account cannot be made without penalty until

the age of 59 ½.

If a premature withdrawal is made,

the amount taken out is subject to normal income tax plus a penalty tax of 10% of the amount withdrawn.

If the person making the contribution is not covered by another qualified pension plan,

the contributions are always tax deductible in full.

if the employee is included in another pension plan,

the tax deductible amount of his contribution is phased out as his income level increases.

If "non-deductible" contributions were made

these are a non-taxable return of capital.

phase out

very high earning individuals are subject to phase-out

Can an individual who is employed contribute to an IRA?

yes. Any individual who is employed can contribute to an IRA.