Learn More About Traditional IRAs with Westminster Wealth Management
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One of our most popular tools for planning for retirement is an Individual Retirement Account, or “IRA” for short. Anyone with earned income can contribute to an IRA, up to $6,000 per year. If the account is being opened for a minor, a custodian would need to be named. You can only contribute as much (or less) than you have made in earned income for the year. IE if you’ve made $100,000, the full $6,000 can be contributed. If only $4,000 has been made in earned income, only $4,000 can be contributed to the IRA. There is a “catch-up” provision of $1,000 for individuals who are over the age of 50, making a total of $7,000 potential yearly contribution for individuals over age 50.
Anyone can contribute to an IRA, regardless of level of income. This differs from a Roth IRA, which has phaseouts that disallow contributions for those who make over a certain amount of income. Whether or not the contributions to an IRA can be used as income tax deductions depend on two things: whether you or your spouse is covered by a Qualified Employer Sponsored Plan AND if so, income must be under certain limits. Those limits change yearly. All distributions from an IRA are subject to income tax. If taken out of the IRA before 59 ½, the distribution would be subject to an additional 10% penalty. There are several exceptions to the 10% penalty for individuals under 59 ½ years of age, one being $10,000 exemption for a first-time home buyer.
If you have any questions about a Traditional IRA, feel free to contact us!