In this week's SmartMoney Monday, we continue with our topic of taxes this month, specifically, information on IRAs, or Individual Retirement Accounts.
An IRA, which stands for Individual Retirement Account, is a way for people to save for their retirement. There are two popular types of IRAs, Traditional and Roth IRAs, each with their own benefits. As their contributions are able to grow tax- deferred for a Traditional IRA or non-taxable for a Roth IRA. Generally, the earlier you start contributing to an IRA, the more you will may have in that account when you retire, as you have the benefit of time. There are two popular types of IRAs, Traditional and Roth IRAs, each with their own benefits.
For both Traditional and Roth IRAs, the total amount you can contribute for 2015 is $5,500. For those people 50 years and older, they can contribute there is a catch-up provision that allows an additional $1,000, in contribution for a total of $6,500 in 2015 and 2016. To contribute to a Roth IRA, your income must be below a certain threshold, depending on your filing status. Also for Roths, you can contribute at any age. Although you can't deduct contributions to a Roth, any withdrawals you make will not be taxed as long as you've reached 59 ½ years of age. For a Roth, there is also no RMD, or required minimum distribution,. or RMD.
For Traditional IRAs, you must be under 70 ½ years of age to contribute. Contributions to a Traditional IRA may be tax deductible depending on your income and filing status. However, you will pay ordinary income taxes on your withdrawals. Also, in contrast to the Roth, you will need to take your first RMD by April 1 of the year following the year you turn 70 ½ years of age. For both IRAs, you have until April 18 of this year to contribute to your account and claim your contribution on your 2015 return. The date is later this year due to the Emancipation Day holiday.
Tax season is always a good time to consult with your attorney, trust officer, financial advisor and accountant for a financial check-up. You will want to make sure your financial documents are in accordance with your desiresreflect your goals, and as well as have been updated to reflect any changes that may have been made in estate and tax laws since the you last updated date your documents were prepared.
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