Retirement savings is important. But what’s more important is that you understand how your retirement savings can impact your taxes. Here are some end of summer 2022 reminders about IRAs which is short for Individual Retirement Accounts.
First, remember that these accounts can be with a bank or other financial institution, a life insurance company, mutual fund, or stockbroker. Even precious metals companies and cryptocurrency companies offer IRAs so investigate all your options.
Key Things To Know
- A traditional IRA is a tax-advantaged personal savings plan where contributions may be tax deductible.
- Generally, the money in a traditional IRA isn’t taxed until it’s withdrawn.
- There are annual annual limits for your contributions depending on your age and the type of IRA.
- Now let’s talk taxes.
- You may face a 10% penalty and a tax bill if you withdraw money before age 59½, unless you qualify for an exception.
- Usually, you must start taking withdrawals from your IRA when you reach age 72. For tax years 2019 and earlier, that age was 70½.
- Special distribution rules apply for IRA beneficiaries.
As always talk to a tax professional or financial expert about your retirement plans and goals.
Roth IRAs Differences
A Roth IRA is another tax-advantaged personal savings plan with many of the same rules as a traditional IRA but there are exceptions for a Roth IRA.
- A taxpayer can’t deduct contributions to a Roth IRA.
- But your qualified distributions are tax-free.
- Roth IRAs don’t require withdrawals until after the death of the owner.
There Are Other Types of IRAs
- Savings Incentive Match Plan for Employees. This is called a SIMPLE IRA and it allows employees and employers to contribute to traditional IRAs set up for employees. It is suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.
- Simplified Employee Pension. This is called a SEP IRA and is set up by an employer. The employer makes contributions directly to an IRA set up for each employee.
- Rollover IRA. This is when the IRA owner receives a payment from their retirement plan and puts it into a different IRA within 60 days.
CHECK ON YOUR TAX DEBT NOW
Many people don’t get interested in IRAs until tax time. But mid-year is always a great time to start saving. But if you are not saving and instead have a burden with a tax debt, the end of the summer is also a great time to start taking action to reduce your tax debt. We offer a free consultation to discuss your tax issues and in 15 minutes we can tell you if you might qualify for an IRS Fresh Start Program or an IRS Offer In Compromise Program.
Not everyone qualifies for a Fresh Start Program or an Offer In Compromise Program and if you don’t qualify there are other tax debt relief options that we can discuss with you, and again this consultation is free. Yes, you can ask the IRS yourself about a Fresh Start Program or an Offer In Compromise Program, but we think we can get things done faster and with a better result. You have nothing to lose by making the free call to us for the free consultation.