William Penn Life, 2017 (52. évfolyam, 1-12. szám)
2017-02-01 / 2. szám
Moneywise with Bob Bisceglia, National Sales Director The ins & outs of SINCE FEBRUARY MARKS the unofficial start to the income tax filing and IRA contribution season, I thought I'd dedicate this month's column to discussing IRAs, including the advantages and disadvantages of each type of IRA. Let's start with the basics: What is an IRA? In the United States, the term "IRA" refers to an "Individual Retirement Account." There are numerous kinds of IRAs with their own particular pros and cons. Here are some of the most common types for you to consider. • Traditional IRAs. The "traditional" IRA is the oldest and most common type of individual retirement account available. With a traditional IRA, you contribute funds to your account and receive a current-year tax deduction for your contribution. The rules for deductibility of your contribution have changed significantly since the IRA was first introduced in 1974. The deductibility now depends on your income and whether or not you are covered by a pension plan (e.g., a 401K plan) where you work. The charts below and on the next page offer more guidance on this, but it is always wise to seek the advice of your tax advisor to determine your own eligibility. Money that is deposited into your IRA account is protected from taxation until withdrawn, potentially many years in the future. This feature allows you to retain your interest without having to add the earnings onto your current year's income. You pay the taxes on the IRA when distributions begin. However, any withdrawals you make from your IRA before you reach age 59 V2 may be subject to a 10 percent early withdrawal penalty tax. Another important feature to note is that you MUST start to take withdrawals from your IRA once you reach age 70 V2. These withdrawals are known as "required minimum distributions." The penalty for not taking your required distribution can be pretty steep, so we recommend that you be aware of your limits and make sure that you take the required minimum each year. • Roth IRAs. The Roth IRA was introduced as the result of the Taxpayer Relief Act of 1997. The Roth IRA is often considered to be better than a traditional IRA because, although there are still income guidelines to follow, you can contribute to this account even if you don't qualify for a "traditional" IRA deduction. And, unlike with traditional IRAs, with a Roth IRA you do not need to begin distributions at age 70 Vi Plus, if your distributions are "qualified" distributions (typically after attaining age 59 V2), your entire distribution of principal and interest are tax free. The downside to the Roth IRA is that it does come with income limitations, and not everyone will qualify. Because the limits change on an annual basis, you will need to check with your tax advisor or the IRS to find out if you qualify. For 2016 and 2017, your total contribution limits of ALL your traditional and Roth IRAs cannot be greater than your taxable compensation for the year or $5,500 ($6,500 if age 50 or older). • SEP-IRAs. The SEP-IRA stands for "Simplified Employee Pension Individual Retirement Account." These are generally used by self-employed business owners and follow the same features as the traditional IRA, but the contribution limits for the SEP-IRA are usually much higher than with the traditional IRA. So, what are the limits for 2016? Here are the limits if you ARE NOT covered by a pension plan where you work: If Your Filing Status Is... And Your Modified AGI Is... Then You Can Take... single, head of household, or qualifying widow(er) any amount a full deduction up to the amount of your contribution limit. married filing jointly or separately with a spouse who is not covered by a plan at work any amount a full deduction up to the amount of your contribution limit. married filing jointly with a spouse who is covered by a plan at work $184,000 or less a full deduction up to the amount of your contribution limit. more than $ 184,000 but less than $ 194,000 a partial deduction. $ 194,000 or more no deduction. married filing separately with a spouse who is covered by a plan at work less than $ 10,000 a partial deduction. $10,000 or more no deduction. If you file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the "single" filing status.__________________________________________________________________________ 4 0 February 2017 0 WILLIAM PENN LIFE
