IRA Haze
There’s my son Sondre again, dressed as Jimi Hendrix (or Jake the Pirate). I can’t remember which. He even handles his axe (or sword) left handed like Jimi.
Mr. Hendrix once sang a tune about a “Purple Haze”. This “Purple Haze” was all in his eyes, his brain, in fact this haze was blowin’ his mind.
When some of us hear talk of IRAs (Individual Retirement Accounts), we may feel the same way. We may not know if we are up or down or if it’s day or night. We may even start actin’ funny and not know why. Excuse me while I kiss the sky (I couldn’t resist).
The below information from the IRS may help to clear up some of the haze regarding two of the more popular forms of IRAs – the Traditional and Roth.
Traditional IRA
- Annual contribution limit - $5,500 ($6,500 if you’re age 50 or older) for 2017 & 2018 or your taxable compensation for the year, if your compensation was less than this dollar limit
- Tax deductible - No retirement plan at work: Your deduction is allowed in full if you (and your spouse, if you are married) aren’t covered by a retirement plan at work
- Tax deductible - Retirement plan at work: Your deduction may be limited if you (or your spouse, if you are married) are covered by a retirement plan at work and your income exceeds certain levels
- You cannot make contributions to your Traditional IRA during the year in which you reach age 70 ?
- You generally have to start taking withdrawals from your Traditional IRA account when you reach age 70?
- Your required minimum distribution is the minimum amount you must withdraw from your account each year once you reach age 70?
- Your withdrawals will generally be included in your taxable income
Roth IRA
- Annual contribution limit $5,500 ($6,500 if you’re age 50 or older) for 2017 & 2018 – may be limited by your filing status and income
- Roth IRA contributions are not tax deductible
- You can make contributions to your Roth IRA after you reach age 70 ?
- You can leave amounts in your Roth IRA as long as you live
- If you satisfy the requirements, qualified distributions are tax-free
The above are a few of the basics regarding Traditional and Roth IRAs.
In a nut shell you receive a tax deduction for contributions, but are taxed on distributions from Traditional IRAs. Conversely, you do not receive a tax deduction for Roth IRA contributions, but are not taxed on distributions.
This is a generalization and of course there are specific rules as outlined above and others as well.
For further information please see your local tax or investment professional. With their help, you can determine if either of these retirement accounts are right for you.
Bonus!
In all seriousness, Veterans’ Day is upon us. Please take the time to thank a Veteran. The sacrifices that Veterans have and do make, allow us many freedoms. These freedoms include me writing this article and you reading it. In many countries there is not freedom of speech, the press, internet is restricted or unavailable, etc. In this country we have our issues and our differences, however, in my humble opinion the United States of America is the greatest place on earth to call home. THANK YOU VETERANS
Please enjoy the Man in Black, Johnny Cash, paying tribute to Marine Ira Hayes in a performance of the “Ballad of Ira Hayes”. Ira was one of the six Marines that were captured in the iconic photo raising the American flag over Iwo Jima during World War II.
Ira was lucky enough to come home. However, like many brave men and women that go off to war, he carried the scars of battle back home with him.
https://www.youtube.com/watch?v=7hdW-PkFBZ4
R.I.P. United States Marine Corporal Ira Hamilton Hayes
Humbly in collaboration,
Ben