IRA’s
Advantages of Using a Traditional IRA
1. Contributions to a traditional IRA are fully deductible provided that the taxpayer has not exceeded certain income limitations and no employer sponsored retirement plan is available.
2. All gains on amounts in the plan are tax deferred until the money is withdrawn.
3. Contributions can be made after the tax year ends. The deadline to contribute is April 15th of the next year.
4. A stay-at-home spouse can make contributions even if he or she has no earned income.
5. The Retirement Saver’s Credit encourages retirement savings by allowing a credit based upon a percentage of amounts contributed. This credit can be for an amount as high as $2,000 for a married couple filing jointly.
6. Up to $10,000 can be used for a first-time homebuyer without paying the early withdrawal penalty.
7. Up to $10,000 can be used for certain education and other expenses without paying the early withdrawal penalty.
Disadvantages of Using a Traditional IRA
1. All distributions are taxed at ordinary income rates – applicable at the time funds are distributed.
2. An owner of an IRA account is required to take an annual minimum distribution once he/she reaches age 72. If the required distribution is not taken, a 50% excise tax may be imposed on the shortfall.
3. Relatively low maximum contribution amount.
(This information is designed to be of general interest. The specific techniques and information discussed may not apply to you. Before acting on any matter contained herein, consult with your professional advisor.)
Advantages of Using a ROTH IRA
1. No taxes are due on withdrawals from the account if the proceeds are generated after the taxpayer reaches age 59 ½.
2. The taxpayer does not have to take mandatory distributions from the account.
3. Contributions can be made after the tax year ends. The deadline to contribute is April 15th of the next year.
4. A stay-at-home spouse can make contributions even if he or she has no earned income.
5. The Retirement Saver’s Credit encourages retirement savings by allowing a credit based upon a percentage of amounts contributed to a Roth (or regular) IRA. This credit can be for an amount as high as $1,000 per taxpayer.
Disadvantages of Using a ROTH IRA
1. Contributions cannot be used to offset taxable income (as with a traditional IRA).
2. There is a 10% early distribution penalty, based on minimum age or for distributions during the first five years of the account.
3. Relatively low maximum contribution amount.
(This information is designed to be of general interest. The specific techniques and information discussed may not apply to you. Before acting on any matter contained herein, consult with your professional advisor.)
Reffue, Pas, Jacobson, Roth & Koster, LLP
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Monroe, WI 53566
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