• Wealth Management Division

Do you have a Traditional IRA Account?

Individual retirement accounts (IRAs) are a traditional approach to saving for retirement. If you do not have an employer-sponsored retirement plan like 401(k) or would like to supplement one, a standard IRA might be an excellent choice.

A typical IRA is essentially a tax-deferred savings account that may be set up through an investment institution and offers a variety of investment alternatives. The funds in an IRA account, for example, can be invested in stocks, bonds, mutual funds, cash equivalents, real estate, and other investment vehicles.

One of the advantages of a traditional IRA is the ability to make tax-deductible contributions. In 2022, you may be able to make a tax-deductible contribution of up to $6,000 ($7,000 if you are 50 or older), the same rules apply for 2021 contributions. Contribution caps are adjusted for inflation on a yearly basis.

You can contribute directly to a traditional IRA or transfer assets directly from another form of eligible plans, such as a SEP or SIMPLE IRA. Rollovers from a qualified employer-sponsored plan, such as a 401(k) or 403(b), can also be made when you change employers or retire. Remember, before taking any action, make sure you understand the pros and cons of rolling funds from an employer plan to an IRA, including the option of leaving the funds in your employer plan if the plan allows it; you may also be able to rollover the funds to your new employer's plan if the plan allows it. Consult with a financial advisor, if things are not clear.

Not everyone who contributes to a traditional IRA is eligible for a tax break. If you are a regular contributor to a qualified workplace retirement plan, such as a 401(k) or a simplified employee pension plan, your IRA deduction may be reduced or eliminated depending on your income.

For example, in 2022, if your modified adjusted gross income (AGI) is $68,000 or less as a single filer or $109,000 or less as a married couple filing jointly, you can claim the entire tax deduction. If your AGI is more than $78,000 as a single filer or $129,000 as a married couple filing jointly, you are not eligible for a tax deduction. Single filers with earnings between $68,000 and $78,000, or married couples filing jointly with incomes between $109,000 and $129,000, are eligible for partial deductions. You are qualified for the full tax deduction if you are not an active participant in an employer-sponsored retirement plan.

When you begin withdrawing from your account, nondeductible donations may need some pretty complex documentation. If your contributions are not tax-deductible, another retirement plan, such as a Roth IRA, maybe a better fit for you. In 2022, the total annual contribution limit for regular and Roth IRAs is $6,000 per participant.

Traditional IRA assets accrue tax-deferred, which means you don't have to pay taxes on them until you start getting distributions in retirement, when you may be in a lower tax bracket. Withdrawals are subject to regular income taxation. Withdrawals made before the age of 59½ may also be subject to a 10% federal income tax penalty. Distributions resulting from disability, unemployment, and eligible first-time home costs ($10,000-lifetime maximum) are exempt from the early-withdrawal penalty, as are distributions used to cover higher-education expenses.

You must begin taking annual required minimum distributions (RMDs) from a traditional IRA after the age of 72 (no later than April 1 of the year following your 72nd birthday), or you will face a 50% income tax penalty on the amount that should have been withdrawn. Of course, you may always withdraw more than the needed minimum, or even the full balance as a lump payment.

Would you like to consult with an advisor about prospects of opening a Traditional IRA account?


The material on this page reflects PG Capital's professional opinions as of today and is subject to change. The information presented here has not taken into account any particular investor's investment goals or needs, and investors should not base their investment decisions entirely on this material. Past performance is not a guarantee of future results. All investments involve some amount of risk, and investors have different time horizons, goals, and risk tolerances, so consult with your PG Capital Financial Advisor before proceeding.

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