It’s never too early to start thinking about retirement, no matter what stage of life you’re in, because even tiny decisions you make now can have a major impact on your future. While you may already be enrolled in an employer-sponsored retirement plan, an Individual Retirement Account (IRA) allows you to save for retirement on the side while potentially reducing your tax liability. There are various sorts of IRAs, each with its own set of restrictions and perks. You contribute after-tax cash to a Roth IRA, your money grows tax-free, and you may normally make tax- and penalty-free withdrawals beyond the age of 59.5. You can contribute pre- or after-tax money to a Traditional IRA, your money grows tax-deferred, and withdrawals are taxed as current income after age 59.5

I know it is a little confusing but give a call and we can explain it for your situation.  Here are more details that may help.

Details about a Traditional IRA

Individuals can contribute pre-tax income toward investments that grow tax-deferred in a traditional individual retirement account (IRA). Until the beneficiary makes a withdrawal, the IRS charges no capital gains or dividend income taxes. Individual taxpayers are allowed to contribute up to a certain dollar limit.

There may be income limits as well. Depending on the taxpayer’s income, tax-filing status, and other criteria, contributions to a traditional IRA may be tax-deductible. Traditional IRAs can be opened through a financial advisor.

If this sounds like something you want to chat about, give us a call and we are happy to help.

Keys to understand:

Traditional IRAs (individual retirement accounts) allow individuals to make pre-tax contributions to a retirement account, which grows tax-deferred until withdrawal during retirement.

Withdrawals from an IRA are taxed at the current income tax rate of the IRA owner. There are no taxes on capital gains or dividends.

There are contribution restrictions ($6,000 for individuals under 50 in 2021 and 2022, $7,000 for those 50 and older), and required minimum distributions (RMDs) must commence at age 72.

Details about a Roth IRA:

A Roth IRA is a tax-advantaged individual retirement account into which you can put after-tax money. The main advantage of a Roth IRA is that your contributions and earnings can grow tax-free and be withdrawn tax-free when you reach the age of 59.5, presuming the account has been open for at least five years.

Traditional and Roth IRAs are similar, with the main difference being how they are taxed. Roth IRAs are funded with after-tax dollars, which means that the contributions are not tax deductible but the money is tax-free once you start withdrawing it.

Keys to understand:

A Roth IRA is a type of individual retirement account (IRA) in which you pay taxes on the money you put into it but not on any future withdrawals.

When you think your marginal taxes will be greater in retirement than they are today, Roth IRAs may be the way to go.

If you earn more than $140,000 in 2021 ($144,000 in 2022), you won’t be able to contribute to a Roth IRA. The ceiling is $208,000 ($214,000 in 2022) for married couples filing jointly.

The amount of money you can contribute as a deductible varies from year to year. The contribution limit for 2021 and 2022 is $6,000 per year, unless you are 50 or older, in which case you can deposit up to $7,000.

Hope that helps.  We understand this world is very confusing, give a call and we can help you understand how these fit into your situation and life.

Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding the accuracy, adequacy, completeness, legality, reliability, or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.

Stephen Pease, David W. Smiley and Matt Hoaglin are Investment Advisor Representatives with Dynamic Wealth Advisors dba Oxford Financial Planners.  All investment advisory services are offered through Dynamic Wealth Advisors.