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Contribution Rules for IRAs - Which One is Best for You?

FishermanIRAs (Individual Retirement Accounts) are a great way to save for the future by building up tax-deferred funds. Different types of IRAs have different contribution rules. Depending on those rules, one type of IRA might be a better fit for you than the next. Here is a breakdown of the difference between IRAs.

Roth IRAs – Contributions can be made at any age and qualified distributions are tax free.

Traditional IRAs – Earnings accumulate tax-deferred and contributions are tax-deductible for qualified.

Contribution Rules - Roth IRA:

  • Allows you to withdraw earnings tax free if they remain in the Roth IRA for at least 5 years and you are 59½ or older
  • Contributions are non-deductible and may be withdrawn anytime without penalty or taxation 
  • You can make contributions up to the maximum limit or your earned income, whichever is less 
  • You can continue to make contributions even after you reach age 70½ and have earned income 
  • Distributions are not required after age 70½

Some more facts about Roth IRAs:

  •  If you are employed and have earned income, you can make contributions to a Roth IRA, even after turning age 70½.
  • Unlike a traditional IRA, a Roth IRA doesn't require you to take required minimum distributions when you turn age 70½. 
  • Participation in an employer-sponsored retirement plan has no bearing on your eligibility for a Roth IRA. 
  • Since no annual required minimum distributions apply during your lifetime, you can let your savings accumulate tax free much longer — and on your schedule. 
  • You must meet income limits to make contributions.

Contribution Rules - Traditional IRA:

  • Allows your earnings to grow tax deferred
  • Contributions may be tax deductible 
  • This up-front tax break may reduce the current income taxes you owe

Some More Facts about Traditional IRAs:

  • You must be less than 70½ years old and have received compensation to qualify for making an IRA contribution.
  • You are automatically eligible for a tax deduction if neither you, nor your spouse, are covered by an employer-sponsored retirement plan and your Modified Adjusted Gross Income (MAGI) is under IRS limits. 
  • In addition to the up-front tax break, money in a traditional IRA accumulates tax-deferred. 
  • When you take distributions, both your deductible contributions and earnings will be taxed at your regular income tax rate.

Rivermark’s IRA options charge no annual maintenance fees and can easily be rolled over from another financial institution. For more information on please fill out this form and a Rivermark representative will contact you shortly.