An Individual Retirement Account (or IRA) is a retirement plan account that provides some tax advantages for retirement savings in the United States.
A Roth IRA is an individual retirement account (IRA) in the United States. A Roth IRA can invest in securities, usually common stocks or mutual funds, but other investments, including derivatives, notes, CDs, and real estate are possible. As with all IRAs, there are specific eligibility and filing status requirements mandated by the U.S. Internal Revenue Service. A Roth IRA’s main advantage is it’s tax structure. Contributions are made only from earned income that has already been taxed (and is not tax deductible), but withdrawals of contributions and earnings are income tax-free. In contrast, contributions to a traditional IRA may be tax deductible if certain eligibility requirements are met, but withdrawals are included in the account owner’s income (and thus subject to income tax). Another advantage of the Roth IRA over a traditional IRA is that there are fewer restrictions and requirements on withdrawals. With both types of IRA, transactions inside the account (including capital gains, dividends, and interest) incur no tax liability.
The total of contributions to all IRAs for 2016 are $5,500 or $6,500 if over age 50. This total may be split up between any number of Traditional and Roth IRAs. If married, both you and your spouse may contribute the amount listed.
A traditional IRA is an individual retirement account (IRA) in the United States. The IRA is held at a custodian such as a bank, insurance company or brokerage firm, and may be invested in anything that the custodian allows (for instance, a bank may allow certificates of deposit, and a brokerage may allow stocks and mutual funds). Unlike the Roth IRA, the only criterion for being eligible to contribute to a Traditional IRA is sufficient income to make the contribution. However, the best provision of a Traditional IRA-the tax-deductibility of contributions-has strict eligibility requirements based on income, filing status, and availability of other retirement plans (mandated by the Internal Revenue Service). Transactions in the account, including interest, dividends, and capital gains, are not subject to tax while still in the account, but upon withdrawal from the account, withdrawals are subject to both federal & state income tax. At age 70 and a half, the IRS forces you to take required minimum distributions (RMD’S). Failure to take the minimum amount to satisfy the government could result in a 50% penalty.
This is in contrast to a Roth IRA, in which contributions are never tax-deductible, but qualified withdrawals are tax free. The traditional IRA also has more restrictions on withdrawals than a Roth IRA. With both types of IRA, transactions inside the account (including capital gains, dividends, and interest) incur no tax liability.
The total of contributions to all IRAs for 2016 are $5,500 or $6,500 if over age 50. This total may be split up between any number of Traditional and Roth IRAs. If married, both you and your spouse may contribute the amount listed.