“IRAs were established to help Americans save for their future, and retirement savers should take advantage of tax shelters such as IRAs to build and grow their nest eggs.”
A GOBankingRates.com survey found that one in three Americans has saved nothing for retirement. One great way to get started on retirement savings is by using an IRA: Individual Retirement Account.
According to madison.com’s article, “5 Things You Should Know about IRAs,” an IRA is a popular retirement savings vehicle. It lets individuals put money away for the long term, while providing them with tax advantages.
There are two main types of IRAs: traditional and Roth. Contributions made to a traditional IRA may be deductible or non-deductible, and all contributions made to a Roth are non-deductible. Both types of IRA accounts allow money to grow tax-deferred for many years. After age 59½, you can start taking qualified distributions. You’ll typically have to pay income tax on withdrawals from a traditional IRA, but withdrawals from a Roth are tax-free. In addition, here are a few more aspects of the IRA to consider.
- Saving for retirement is a solo job, at least when you’re putting money in a tax-sheltered retirement account. An IRA can only have one owner.
- IRAs have their own beneficiary designations, so who will inherit an IRA is based on who’s on the account's beneficiary forms—not what’s in a will, trust, or any other estate document. Therefore, when you open an IRA, name a beneficiary and remember to review and update the beneficiary designation form regularly, particularly when you have a life event, such as marriage or a child.
- You have until Tax Day to make your IRA contribution for the last year. If you can't make a lump-sum contribution at the start of every year (giving your money added months to compound), you can spread your contributions over a 15-month period, from January until the following March to help you reach the annual contribution limit each year.
- You typically must have your own taxable compensation to fund an IRA ( although a working spouse can fund a non-working spouse's IRA.) However, you don't have to use your own money to make your IRA contribution.
- Consider rolling all of your 401(k)s into one IRA, which can hold all your old 401(k) money. You can also make direct contributions.
Always consult with a professional financial planner and certified public account before making any decisions that could affect your retirement and tax planning.
One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.
Reference: madison.com (March 13, 2017) “5 Things You Should Know About IRAs”