Important Tax Information for Those with IRA Plans
Did you know that you have the opportunity to save money for your future with an Individual Retirement Arrangement (IRA)? An IRA allows United States (US) taxpayers to save money for their retirement on a temporary tax-free basis. What this means is that if you open an IRA account, any money that you put toward it will be deducted from your gross earnings. That IRA money is then considered a frozen asset and will not be taxed until the day you liquidate it. So the day you withdrawal funds from your IRA account is the day you’ll have to pay taxes on it because will officially be considered as income. Furthermore, you’ll be required to report that additional income on your next annual tax filing.
Are There Any Contribution Limits?
With such a savings essentially being tax-free, it would be ideal to save as much money as possible. If every taxpayer were able to delay the amount of taxes owed on their retirement savings, there would be a serious problem in our federal budget. That is why there are limits to how much tax-free money you can deposit into your IRA. According to the Internal Revenue Service (IRS), the total contributions to your IRA cannot be more than $5,500 or $6,000 if you are over the age of 50. Also, the amount of money that you’d like to save cannot be more than your “taxable compensation for the year, or if your compensation was less than this dollar limit.”
With that said, it is possible for your IRA contributions to be tax deductible if your spouse is also contributing, causing the total amount to exceed the federal limit.
What About Deduction Limits?
A nice benefit with IRAs is that even though your contribution is tax-free, you still might be able to claim a deduction on that amount. Roth IRAs aren’t deductible but traditional IRAs are contingent on whether you have a retirement plan through your job or not. Certain rules apply for each of these cases. Visit the official IRS website to read more on traditional IRA deductions
What Do I Need to Know about Rollovers?
Some rollovers can be tricky. Understanding exactly how they work can often get confusing. Rollover is the term used when you transfer your 401K savings that you accumulated through your job to an IRA account. When you do this, the money is still considered tax-free because it was not liquidated directly to you. In cases like this, your employer will give you the option of taking your 401K contributions and transferring it directly into an IRA. In that case, the IRS will not consider that as income. You’ll also have the option of allowing your employer to send your 401K contributions directly to your IRA account. The choice is up to you.
Having an IRA account certainly has its tax benefits, and the experienced team at Success Tax Relief knows exactly what they are as well as other valuable tax information you didn’t know you needed. If you’re interested in learning more about how an IRA can work for you, contact the Success Tax Relief firm at 877-825-1179 or contact online today.