IRA AND THE IRS
It’s all about IRA’s and taxes
The reason you are here is because you have questions, questions that I may be able to answer regarding your taxes and IRA account!
I have to admit, I hate taxes but I love my IRA account! I love knowing that the money that is automatically transferred into my IRA account will be there when I’m ready to collect!
I hate paying taxes, but unfortunately, that part will never go away!
So, I wanted to talk about IRA’s and taxes!
But first, let me begin by explaining the difference between the two types of IRA’s. Firstly, IRA stands for Individual Retirement Account. The two types of IRA’s is the “traditional” IRA, and “Roth” IRA.
Traditional IRA are tax-deductible. Plain and simple. You can deduct your contributions to your traditional IRA on your taxes. But if you’re covered by a retirement plan at your job, then, your deductions may be less.
Here’s the catch, you won’t be taxed on your contributions till you are ready to withdraw which will be at your retirement age, which is 70 ½. So, in other words, while you’re not paying taxes on your money as you contribute to your IRA account in today’s dollars, your money will be taxed whether it’s fully or partially at the time you collect on your contributions.
So, now you want to contribute to a Traditional IRA, how much can you contribute? $6,000 annually. (it went up from last year (2018) which was $5,500). For me, I simply cannot contribute $6,000 annually, and this is in terms of monthly contributions, I just can't do it. If you can contribute $500 per month into your IRA account then by all means, go for it because it will benefit you in the long run!
But I think it can be challenging for some of us.. So, I just contribute about $100 per month, depending on what I have going on financially, and if I'm able. When contributing, the only type of compensation you can contribute are wages, commissions, tips, bonuses, salaries, or net income from self-employment pretty much anything that is on your W2 you can contribute.
Can you and your spouse own an IRA in joint names? The answer is, NO. But you can have a beneficiary or beneficiaries to collect the contributions after you’ve passed on.
Very important side note, make sure you start collecting on your money by April 1 of the year after the year you reach age 72, otherwise you will owe an “excise” tax. And make sure that you don’t withdraw before age 59 ½, otherwise you will be charged 10% on your withdrawal.
Now, let’s talk about the Roth IRA. The rules are similar as far as how much you can contribute and when to collect on your money. The only difference is that you cannot write off your deductions on your taxes, therefore you do not have to report your contributions to the IRS. Period. That’s it! And when its time to withdraw, you are not taxed at all! Why? Because you have been paying on your contributions all along! And this is why I like the Roth IRA versus the Traditional IRA.
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