Monthly Archives: June 2019

IRA contributions

Image result for contribute to ira

In my last entry, I went over what IRAs are and why they matter. This entry will cover contributions to your IRA. You can’t retire without money and to fund an IRA you need to make sure you’re able to stay within certain limits set in place by the IRS. I know what some of you are thinking: “why do I have to limit what I put into my IRA? It’s my retirement money after all!” rest assured I will explain what this entails shortly.

Image result for ira contribution limit

As of this year, the IRS limits up to $6000 to be placed into an IRA each calendar year for regular contributions and $1000 max for catch up distributions. People with eligible compensation (like your earnings from work) of less than their max contribution can only contribute into their IRA equal to their work wages. You can also own a traditional and a Roth IRA, but you cannot go past the $6000 annual limit. Additionally, if you’re 50 or older before the end of the tax year you can make a catch-up contribution into your IRA as well. The deadline for contributions (regular, catch-up, prior year, etc.) is April 15th to the following calendar year.

Image result for modified adjusted gross income (magi)

To contribute to a traditional IRA, you must be less than 70 ½ years old and eligible earned funds (usually from work) to place into the IRA. The same rule applies if your spouse wishes to contribute to your IRA but in addition, they must file joint on their tax return with you. Now there are factors regarding your contribution regarding deductions on your taxes. Such factors include having an employer sponsored retirement plan (i.e. 401k), marital status and modified adjusted gross income. Your financial custodian over your IRA cannot determine or track deductible contributions so keep that in mind as you contribute this will need to be done yourself. To further break down modified adjusted gross income you will want to make sure to account for having an employer sponsored retirement plan because there are different ranges for those different income tiers. The same rules apply to Roth IRAs as well. Roth IRA accounts can also receive transfer contributions, rollovers, and conversions (from traditional to Roth and vice versa). Your income has phase out ranges for Roth IRA contribution eligibility, this means however much you make could disqualify you for making a Roth IRA contribution. If your adjusted gross income is within the proper phase out range, however, the eligible contribution amount for a person is reduced. These levels can vary from year to year.

Image result for ira custodian

For financial organizations accepting IRA contributions it is required that they keep records of the contributions, the type and the year it was made. This is important for your records and on a typical form for collecting information you’ll see things pertaining to the IRA type, how much you’re putting in, the contribution type and when it was made, as well as any other info including your signature for the records. These contributions can also be reported to the IRS via a form 5498 and have their own tax form for each year you contribute. this information is compared to an individual’s income tax return to determine what’s taxable or tax advantaged as well.  Under some state laws it is possible to have a saver’s credit for contributions (see your states contribution rules for this). Typically. these are low to moderate income individuals and the credit is typically nonrefundable and not to exceed $1000. This is based on the annual adjusted gross income figures calculated by the IRS and cost of living adjustments. To be eligible you must be 18 before the end of the tax year (April 15th), not be a dependent or full-time students (sorry kiddos) and have adjusted gross income in the acceptable limits (depending on the year this could vary). This info can be found on the IRS publication 590-A and 8880 for credit for qualified retirement savings contributions.

I knew I threw a lot of material at you today, I wanted to condense this as best as possible. Tune in next time when I discuss the distributions from an IRA and what that means to you. Until then, invest wisely my friends, ciao!

Image result for to be continued

IRA Fundamentals part 1: Introduction

Image result for individual retirement account

An introduction

All good things come to an end. Nothing lasts forever, not even diamonds if you ask me. We all age, get a little slower and eventually can’t work to the same level we used to. It’s time to discuss the important topic of retirement. I know it’s something no one usually thinks about but it’s a thing that you should probably consider if you haven’t thought of it already. Time stands still for no one and each passing day is an opportunity lost fore retirement savings, allow me to share a little savings tool known as the IRA.

An Individual Retirement Account, IRA for short, is a special domestic trust, custodial account or annuity established for saving for retirement. This is not a CD, a money market account, or any special type of investment (though you can make investments held under the IRA, more on that later). These types of accounts are established in banks, credit unions, loan associations, insurance companies, brokerage firms or any organization that can demonstrate they can lawfully administer the trust.

Image result for individual retirement account

Retirement savings

IRAs were created to help supplement retirement savings, promote economic growth, and lessen the burden on social programs (SSI, SSA, etc.). Most people will have 4 primary sources of income for retirement: 1) social security income 2) employer sponsored retirement plan benefits (i.e. 401k) 3) IRA and other personal savings and 4) wages. Some people will need all 4 of these retirement incomes necessary to retain their current lifestyle after retirement.

Image result for taxes

IRAs and the US tax law

IRAs are subject to tax law and all kinds of fun legalities such as contribution limits and changes made by the government to make getting an IRA more desirable and increase rollovers into an IRA. There are 2 main types of IRA: traditional or roth IRA. Traditional IRAs have the benefit of being tax deductible if eligible, has tax deferred earnings and potential tax credits if eligible as well. Traditional IRA contributions are tax-deductible on both state and federal tax returns for the year you make the contribution; withdrawals in retirement are taxed at ordinary income tax rates. Roth IRAs offer tax deferred earnings, tax free earnings if there are qualified distributions and, if eligible, tax credits as well. Roth IRAs provide no tax break for contributions, but earnings and withdrawals are generally tax-free. There are other types of IRAs created by changes in tax laws such as savings match incentive programs for employers (SIMPLE) IRAs, SEP IRAs, Self-Directed IRAs, and others.

Image result for financial disclosure documents

Full disclosure

When setting up an IRA you need three key documents to provide to your customer: the plan agreement (contract) between the customer and the financial organization, the disclosure statement expressing the details of the IRA in non-technical terms, and a financial disclosure displaying the projection of the growth of the IRA investment (such as a CD, or money market account within the IRA)  if desired as well. These are provided to the IRA owner for their records and there is a copy retained for the financial organization as well.

Image result for beneficiaries

Ownership and successorship

When setting up an IRA you also have the option for setting up beneficiaries. As an account service specialist,  I STRONGLY recommend placing a beneficiary (or several) on your different accounts in the event of your death. Save your loved ones the trouble of dealing with the courts to get your IRA or any other account closed and add a beneficiary. With an IRA you can add primary beneficiaries as well as contingent beneficiaries in the event of the primary beneficiary passing as well. Each beneficiary will receive a portion of the IRA funds upon your death. In some states you also have what is called spousal consent; this essentially requires your spouses consent on major changes to your IRA including adding beneficiaries. Certain states adhere to the spousal consent rule, check with your financial institution to see what regulations are in place for marital /community property are in your state when setting up your IRA.

Setting up and IRA and all their Intricacies can be daunting but I am hoping, by the end of my series on IRAs, that you’ll have a better handle on what these tools are and how to use them. I will say there is a lot of tax law involved with these so depending on your tax needs I would always say do your homework and if need be seek the advice of a tax consultant if you’re unsure of what retirement plan will suit your situation. Tune in next time when I present part 2 of my IRA series, until then, invest wisely my friends.

Image result for to be continued