IRA

Smart to Use Roth IRA for College

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Should I use my Roth IRA for college? As a former financial planner, I would often get these questions from clients who read something somewhere. Much like patients asking doctors about drugs they heard about on TV, such questions rarely ended up being a good idea. When it comes to using a Roth IRA to save for college, it actually is a good idea. Can You Use Roth IRA to Pay for College First, you probably know that a Roth IRA is designed for retirement savings. The corresponding vehicle for parents saving for college is a 529 college savings plan. In general, the best way to save for college is in a 529 plan versus a Roth IRA. However, if you are planning to seek need-based financial aid, a Roth IRA might be the better solution for your family. Can I Use Roth IRA to Pay for College? Let’s start with CAN you use a Roth IRA to pay for college. We’ll look at SHOULD you use a Roth IRA for college next. As you may know, a Roth IRA offers tax-advantaged growth for investments within the account. This creates two kinds of money inside of a Roth IRA. The first …

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What Is an IRA?

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What Is an IRA? An IRA is an individual retirement arrangement, but what does IRA really mean? IRA Definition An IRA is a tax-advantaged account used for retirement savings. IRAs are defined and governed by the IRS through Publication 590-A Contributions to Individual Retirement Arrangements, and Publication 590-B Distributions from Individual Retirement Arrangements. Is An IRA a Good Way to Save for Retirement Saving money in an IRA is smart. To know, “Is an IRA right for me,” depends on your financial situation and your retirement goal. An IRA is a great way to reduce taxes and to grow your money without paying taxes for years. There are actually several different types of IRAs such as Roth IRAs, SEP-IRAs and SIMPLE IRAs. The standard, or plain IRA is often referred to as a traditional IRA. What Is a Traditional IRA? A traditional IRA allows taxpayers below a certain income threshold to deduct the value of contributions made to the IRA. The money also grows tax-free inside the IRA. Overall, the funds in a traditional IRA are considered tax-deferred because you will have to pay taxes on tax-deductible contributions and tax-free growth later when you withdraw the money. How Does an …

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IRA Contribution Limits 2022 and 2023

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ira contribution limits for 2021 and 2020

Not all tax numbers stay the same over time. Many income limits and other tax numbers are adjusted each year, either for inflation, or by another statutory mandate. These tax numbers include the tax tables and tax brackets for each year, for example. It also includes IRA contribution limits. The IRS announces the numbers each fall. Since the numbers are adjusted based on inflation, they only increase if there is enough inflation over the course of the year to increase the IRA contribution limits by the same percentage. With some crazy inflation this year, you would expect some of the IRS numbers to be up significantly. IRA contribution limits for 2023 are higher than they were in 2022. 2022 IRA Contribution Limits The 2022 IRA contribution limits were published by the IRS in late 2021. Note that these limits are for contributions made during the 2022 tax year, for use when filing income taxes due by April 2023. IRA Max Contribution 2022 The maximum IRA contribution for 2022 is $6,000. This is the same as the maximum deduction for 2021, 2020, and 2019. The maximum IRA contribution in 2023 is $6,500, up $500 from the year before. Both the 2022 and …

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Why Are Roth IRA Better for Young Adults

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There are several different retirement account types, so why is Roth IRA better for young adults? What makes Roth IRA best for certain people? Can older people still benefit from Roth IRA? Why Are Roth IRA Good? A Roth IRA is one of several tax-advantaged retirement accounts. Like the traditional IRA, all money deposited in a Roth IRA grows tax-free. There are no capital gains taxes on a Roth IRA and no taxes on dividends or interest earned inside a Roth IRA. Why Is a Roth IRA Better Than a 401k for Younger People? What makes a Roth IRA so good is that unlike both traditional IRAs and employer sponsored retirement plans like 401(k)s is that withdrawals from Roth IRA are tax-free. With traditional IRAs or 401k plans, withdrawals are taxable even if you are over 59 1/2. However, you cannot deduct your contributions to a Roth IRA. Why Do a Roth IRA? So, what makes a Roth IRA better for younger people? As a younger person, the money you put into a Roth IRA will have much more time to grow. So, all things being equal, a younger person will end up with a higher amount of earnings in …

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IRA Yearly Fee

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Update: You can easily get a free IRA account almost anywhere these days. If you are paying a custodial or maintenance fee, consider switching IRA custodians. Free IRA Companies: Fidelity Charles Schwab E-Trade SoFi Betterment Ameritrade Vanguard And tons of banks… If you do still have an annual IRA fee… Here it comes, the annual fee on your IRA account. Many brokerages charge their yearly IRA fee, or custodial fee, on their customer’s IRA account during the third quarter. If you take a positive view of the industry, they do it then because there are many other things that have to happen during the fourth quarter, tax reporting is at the top of that list, so the third quarter is less busy. If you take a less a less charitable view of the financial industry, then they do it in the third quarter because that is when financial clients are the least likely to be paying attention. It’s summer, you aren’t really thinking about rebalancing your investments, or closely reviewing your paperwork for taxes, and so on. In other words, the third quarter is the best time to slip in an annual fee unnoticed. Why Is There an Annual Fee …

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Roth IRA Income Limits 2022 and 2023

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The questions have started coming in regarding the 2022 and 2023 income limits for Roth IRA contributions. Planning ahead for taxes is always a good idea. However, sometimes, you can get out a little bit too far. The IRS publishes various numbers, tax brackets, and the like for the next tax year during the fall of the previous year, depending upon what the number is, and how it is to be calculated. Maximum salary limits for Roth IRA contributions in 2023, for example, were known well in advance because the number was set by the IRS in advance. However, the income limitations for Roth IRA contributions are indexed for inflation. In other words, the IRS must wait until it has the proper inflation index calculation according to its rules and regulations. Then, it must apply that inflation amount to the Roth IRA contribution limits for income and compute new Roth IRA income phase-out limits and the maximum salary allowed to make Roth contributions at all. Don’t forget, the law removing the salary cap for converting a traditional IRA to a Roth IRA has been made permanent, so you can convert your IRA to a Roth IRA regardless of how high …

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How To Start Retirement Savings

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One of the things that comes up in financial planning is that getting all of the information and facts can be difficult. This, all too often, leads to financial paralysis where you don’t end up doing anything at all, because you don’t understand all the details. Ironically, a lot of the information that ends up being “too much,” is for edge cases that don’t affect the average American saving for retirement. How To Start Saving For Retirement Now Retirement savings, investing, and planning is one area where complicated topics can needlessly paralyze people from taking action. Occasionally, financial companies themselves accidentally cause this confusion. Not long ago, I was talking with someone about retirement savings. The issue, for this particular person was the commercial talking about “Your Number.” If you remember this commercial, the point was that you should know how much money you will need when you retire. The goal, was to get you to schedule an appointment with one of their financial advisors or brokers to find your number. Since the person I was talking to didn’t know his number, he was stuck on what to do for retirement. The ironic part is that you don’t need to …

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Difference Between a Rollover and a Transfer

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When it comes to rollovers or transfers between 401k accounts and IRA accounts, one word makes a lot of difference. So, what exactly is the difference between a rollover and a transfer? A 401k rollover requires that 20 percent of the amount being rolled over be withheld for taxes, even though the IRS still requires the account owner to deposit 100 percent of the amount within 60 days to avoid taxes and penalties. This means that the account owner has to come up with that 20% on his own, and be sure to deposit it with the 80% proceeds he actually receives. A 401k transfer requires no withholding and moves the funds tax-free. As a result, a 401k transfer is better than a 401k rollover in most cases. Likewise, an IRA rollover gives the account owner 60 days to deposit any rolled over funds into a new IRA account. IRS rules limit each taxpayer to only one rollover per year. An IRA transfer moves the money directly to a new qualified retirement plan account with no delays and with no one per year limits. While many of these rollovers are handled electronically, some are done by a check made out …

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2023 Required Minimum Distributions

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2023 Required Minimum Distributions 1

If you have an IRA or 401k and you are over 70 1/2-year-old, you need to take a required minimum distribution, or RMD, from your retirement account each year. However, with the coronavirus pandemic, Congress passed specific relief for certain kinds of retirement accounts creating different rules for your 2023 RMD. New 2023 RMD Rules Normally, taxpayers over the age of 70 1/2 years old have to take money out of their retirement accounts like IRAs and 401k plans. The reason is simple. The IRS doesn’t want that money sitting there untaxed forever. So, when you get into retirement, it wants to tax that money that you enjoyed paying no taxes on for all of those years. With the coronavirus pandemic of 2020, however, Congress looked to provide some relief to taxpayers in the form of $1,200 payments, small business loans, and relaxing the rules on accessing and using retirement plan money. One of those benefits is the suspension of required minimum distributions, or RMDs, for 2020. All RMDs, regardless of the owner’s age, or how many required minimum distributions have already been taken are suspended for 2020. In other words, there are no required distributions during 2020. If you …

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Fix RMD Tax Problems With QCD

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You’ve spent a lifetime saving for retirement, and you did a really great job. So great, in fact, that you don’t need to take money out of your IRAs. But, you’ve turned 70 1/2, and now the IRS is forcing you to withdraw money from your IRA every year in the form of a Required Minimum Distribution, or RMD. Is there any way to get around having to take an RMD? Mitigating Your RMD’s Affect On Your Taxes The IRS gave you years of tax relief on the funds in your IRA. They only did that to encourage you to save for retirement. Now, that you’re retired (or at least retirement aged) they want their money now in the form of taxes on your IRA withdrawals, but if you played your cards right, you might not ever need to withdraw, and the IRS would have to wait longer for that money. The IRS hates waiting.  The RMD keeps this from being the case. Once you turn 70 1/2 years old, you have to take some money out every year, and the government is there, waiting to tax it. Unfortunately, there is no way to get out of having to take …

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