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Basics of a Traditional IRA

Let’s talk about traditional IRAs.

A traditional IRA is an Individual Retirement Account (IRA) funded with pre-tax or tax-deductible dollars.  These dollars reduce (tax-deductible) the amount of income declared on your tax return.

Example: I am married, my combined household income will be $100,000 in 2018. If my wife and I contribute $5,500 each to our traditional IRA, that will reduce our household income by $11,000 (5,500+5,500), and we would then report and pay taxes on an income of $89,000 (100,000-11,000) instead of $100,000. The benefit of an IRA is to reduce your current tax bill. Then investing those dollars until they used for income in retirement (59.5+) is key. If you invest your first 5,500 at 25, let it grow to 65 using an 8% rate of return, that first $5,500 should grow to nearly $120,000. Imagine if you did that every year?

The Rules:
 You must have earned income greater than or equal to the amount of the IRA contribution, or your spouse with earned income (spousal benefit).
 Individuals can contribute up to $5,500 if they are under 50 years old and $6,500 if they are 50+ years old.
 If you or your spouse has an employer sponsored plan like a 401K or 403B, your income determines how much of your contribution is deductible from your income.
 These limits do not apply for transferring other retirement accounts, like a 401K to an IRA (401K Rollover)
 The tax reform act changed IRA/Roth recharacterization rules.

Always consult your Financial Advisor or CPA/Accountant before making decisions related to IRAs.

If you have any questions or would like to learn more about IRAs, please call 913-681-9155 or email taylor@engageadvisors.com.

 

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Engage Advisors, LLC is a Registered Investment Adviser. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Engage Advisors, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Engage Advisors, LLC unless a client service agreement is in place.