Investing in an IRA can save money on taxes now as well as help with retirement later. Understanding the rules for Individual Retirement Accounts can be tricky but, it can pay big dividends.
Often overlooked at tax time is the value of opening a new IRA or adding to an existing account. IRA contributions can help lower your taxes and there are also limits on annual contributions. But during tax season, contributions can count toward last year’s taxes. In 2018, taxpayers have until April 17 to make contributions to an IRA that apply to the 2017 tax year.
With a Traditional IRA, that means you can make pre-tax contributions that could lower your tax bill for 2017 or increase your refund. For both traditional and Roth IRAs, getting a head start on saving for retirement can also be a big financial boost down the road.
Contributions to a Traditional or Roth IRA may help qualify for the Saver’s Credit. An incentive for lower-income taxpayers can provide up to a $2,000 credit for making a qualified retirement savings contribution match up to 50 percent of the contribution. For example, a married couple earning $37,000 could receive a $500 tax credit for making a $1,000 IRA contribution.
Other key facts to know about IRA accounts:
- The current IRA maximum annual contribution is $5,500. Taxpayers age 50 and above can contribute an additional $1,000 for a maximum of $6,500. The annual contribution limit means it is critical to open an account earlier to maximize contributions.
- Contributions to a Roth IRA are not tax deductible, but there are several key advantages at retirement. Earnings can be withdrawn at retirement tax free, and there is no mandatory age for withdrawals. Traditional IRA withdrawals are taxable, and minimum withdrawals must begin by age 70 ½.
- Roth IRA contributions are limited based on income. Single taxpayers with a modified adjusted gross income of less than $118,000 and married couples making less than $186,000 may be eligible for a full contribution . Higher incomes can make partial contributions. Individuals making at least $133,000 and married couples making at least $196,000 are not eligible to contribute to a Roth IRA.
- There is no annual income limit for making a contribution to a traditional IRA.
- Roth IRAs allow for withdrawals on contributions without penalty at any time. With a traditional IRA, early withdrawals are assessed both a 10 percent penalty and income tax.
Clay County Savings Bank offers both traditional and Roth IRA investments with flexible terms and a minimum of just $500 to open an account. The bank’s account specialist can help you open your new account, convert an existing IRA and answers any questions you may have. For more information, contact us online or call (816) 781-4500.