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JMC Wealth Blog Retirement & Recession

Retirement Confidence Rebounds, But Inflation Looms Large

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The 2024 Employee Benefit Research Institute (EBRI) Retirement Confidence Survey was recently released, and it provides an illuminating look at the current state of retirement preparations and mindsets across the country.

While the findings show reason for optimism, with 68% of workers and 74% of retirees feeling confident about their retirement prospects, this represents only a modest rebound from 2023’s significant dip in confidence levels. Inflation remains the overarching concern, with 83% of workers worried that rising costs may impede their ability to accumulate sufficient savings.1

The survey data reveals a few other key themes that reinforce the importance of prudent, personalized retirement preparation:

Social Security Expectations
Social Security remains the bedrock of most retirement income strategies. An overwhelming 91% of retirees report receiving Social Security benefits, with 62% indicating it’s a significant income source. However, only 25% of retirees say they grasp the program’s nuances and how to optimize their benefits.1

Savings Imbalance
While Americans have ambitious retirement savings goals (one-third of workers believe they’ll need $1.5 million or more), there’s a disconnect with current realities. One-third of workers have less than $50,000 saved, and 14% have under $1,000 put away. This disparity underscores the necessity of developing a tactical, long-term strategy.1

Emergency Savings Needs
Two-thirds of workers would like more opportunities to save for unexpected expenses through their workplace retirement plans. Nearly one in five people admit to tapping their retirement funds for emergencies.1

Lifetime Income Appeal
There’s been a notable uptick in interest regarding products that can provide a guaranteed income stream throughout retirement. 83% of workers contributing to an employer’s plan want to convert some of their savings into a product that generates a steady income. As the risk of outliving one’s assets remains a pressing concern, these products may play a greater role.1

Annuities can be structured to provide an income stream in retirement, but it’s critical to understand they have benefits and limitations. We can explore this in greater detail if you are interested.2

The 2024 EBRI survey highlights retirement preparation’s complexity and evolving nature in the modern era. While no two individuals’ situations are alike, constant monitoring, being proactive, and adaptability are required to navigate the challenges and maximize the opportunities.

Every year, when the EBRI study comes out, I’m one of the first to read through it to see what’s on the minds of today’s retirees. It helps me stay focused on current and future priorities for retirees. As your financial advocate, I’m here to provide the guidance, tools, and solutions to position you for the comfortable, worry-free retirement you’ve envisioned and worked diligently to achieve. If you have any questions or concerns, I’m happy to help.
1. EBRI.org, 2024

2. The guarantees provided by an annuity contract are contingent upon the claims-paying ability of the issuing company. Annuities come with certain limitations, fees, and charges, which may include account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. It’s worth noting that annuities generally impose surrender fees, which are typically highest if you withdraw your funds within the initial years of the contract. Withdrawals and income payments from annuities are subject to ordinary income tax. If a withdrawal is made before reaching age 59½, a 10% federal income tax penalty may apply unless an exception is applicable.
man counting money to use as a catch-up contribution to retirement fund

The Importance of Catch-Up Contributions

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A recent survey found that 18% of workers are very confident about having enough money to live comfortably through their retirement years. At the same time, 36% are not confident.1

In 2001 congress passed a law that can help older workers make up for lost time. But few may understand how this generous offer can add up over time.2

The “catch-up” provision allows workers who are over age 50 to make contributions to their qualified retirement plans in excess of the limits imposed on younger workers.

How It Works

Contributions to a traditional 401(k) plan are limited to $23,000 in 2024. Those who are over age 50 – or who reach age 50 before the end of the year – may be eligible to set aside up to $30,500 in 2024.3

Setting aside an extra $7,500 each year into a tax-deferred retirement account has the potential to make a big difference in the eventual balance of the account, and by extension, in the eventual income the account may generate. (See accompanying chart.)

Catch-Up Contributions and the Bottom Line

This chart traces the hypothetical balances of two 401(k) plans. The blue line traces a 401(k) account into which $22,500 annual contributions are made each year. The red line traces a 401(k) account into which an additional $7,500 in contributions are made each year, for a total of $30,500 in contributions a year.

Upon reaching retirement at age 67, both accounts begin making withdrawals of $7,000 a month.

The hypothetical account without catch-up contributions will be exhausted before its beneficiary reaches age 80. Keep in mind, the IRS regularly updates these maximum contribution limits.

This hypothetical example is used for comparison purposes and is not intended to represent the past or future performance of any investment. Fees and other expenses were not considered in the illustration. Actual returns may vary.

Both accounts assume an annual rate of return of 5%. The rate of return on investments will vary over time, particularly for longer-term investments.

In most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 73. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty.

 

1. EBRI.org, 2023
2. Economic Growth and Tax Relief Act of 2001
3. IRS.gov, 2024. Catch-up contributions also are allowed for 403(b) and 457 plans. Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. In most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 73.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2024 FMG Suite.
JMC Wealth Warren Buffet

Warren Buffet Speaks

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Warren Buffett, the “Oracle of Omaha,” held court at the annual Berkshire Hathaway meeting in early May. Few events on the American business calendar are so hotly anticipated, and there is no hotter ticket in Nebraska- perhaps the entire Midwest!1

Notably absent was Buffett’s longtime business partner and comic foil, Charlie Munger, who passed in 2023. Munger worked with Buffett for over a decade before becoming Berkshire Hathaway’s vice president and sounding board. In his wake, discussion of succession for the 93-year-old Buffett was in the air. Greg Abel, chief of Berkshire’s non-insurance operations, is the heir apparent and has the venerable CEO’s public endorsement.2

Despite these topics, the atmosphere was anything but somber. Buffett did not disappoint, treating his audience to his opinions on various topics. Notably:

  • AI: Buffett is unambiguously a skeptic of artificial intelligence and made headlines with his warning: “We let a genie out of the bottle when we developed nuclear weapons. AI is somewhat similar—it’s part way out of the bottle.”1

  • Overseas: Buffett spoke on his company’s future in Asia. “I am sure there are loads of opportunities in countries like India.” However, he anticipated that he would not explore those opportunities as much as his successors would.3

  • Domestic: Another hot topic was BH’s investments related to major companies and big deals in the news. On Apple, “We have sold shares and I would say that at the end of the year, I would think it extremely likely that Apple is the largest common stock holding we have,” indicating that the sale was for tax purposes. Buffett took responsibility for a less-than-successful investment while discussing Paramount, saying: “We’ve sold it all, and we lost quite a bit of money.”4,5
  • Any companies mentioned are for illustrative purposes only and should not be considered a solicitation for the purchase or sale of securities. This email is an update on Buffett’s annual report. Consult your tax, legal, and accounting professionals before modifying your tax strategy.

Warren Buffett is one of the most fascinating American business figures alive. He retains a financial imagination that looks into the future. However, he is realistic that a smart succession is important, even though he didn’t signal his retirement, quipping to the audience: “I not only hope you come next year. I hope I come next year.”6
1. Wsj.com, May 4, 2024, “Warren Buffett Fears AI Has ‘Enormous Potential for Harm’”
2. Cnn.com, May 4, 2024, “Warren Buffett holds first Berkshire Hathaway meeting without Charlie Munger”
3. Economictimes.indiatimes.com, May 6, 2024, “Buffett says India has ‘unexplored’ opportunities”
4. Foxbusiness.com, May 6, 2024, “Buffett explains Berkshire’s reduced stake in Apple at annual company meeting”
5. Wsj.com, May 4, 2024, “Warren Buffett Praises Apple After Berkshire Hathaway Cuts Stake”
6. Cnbc.com, May 5, 2024, “Warren Buffett weighs in on his own mortality at this year’s Berkshire Hathaway annual meeting”
Happy woman working at a floral shop

Women and Wealth: A Pivot Towards Retirement

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Retirement is a significant transition, and it can bring both challenges and opportunities for women who have spent many years focused on their careers. For women approaching retirement age, it is crucial to consider various tips and strategies to ensure a smooth and fulfilling transition. An elegant pivot from work life to a life of one’s own requires careful consideration. A woman retiring at 65 may live another two decades or more. That’s not only a long time to finance, it’s also a long time to figure out how to fill your life with meaningful activities.1

A Change of Identity

Retirement can change a woman’s identity, especially those who have worked in the same profession for many years. Exploring new interests and finding a new sense of purpose could involve taking on a new job title, pursuing a passion, or simply embracing new hobbies and activities. But you’ll enjoy your retirement more if you start thinking about establishing the new “you” independent of your career.

Addressing Your Finances

One of the first steps to take when preparing for retirement is to address financial matters. This includes reviewing your estate strategy, getting all necessary documents in order, and having contingency plans in place for the emergencies and the unexpected. Consider meeting with a financial professional before and after retiring to help establish that the appropriate steps are being taken.

Pivot to a New Career

For women concerned about their savings or Social Security benefits, considering part-time work, working from home, or starting a small business can provide income and social interaction. You have the choice here to ease into retirement while still keeping active and engaged. The Department of Labor says that women are more likely to work part time in retirement. Many part-time jobs may not have retirement plans, making it necessary to plan accordingly.1

Another option for women is volunteering. Many miss the engagement and challenge of the workforce, and volunteering allows them to dedicate their time to helping others while gaining personal fulfillment. Volunteering can be a way to stay connected to the community while making a difference.

Now that you have the time, why not try something new? Taking classes is also a way for women to continue learning and growing in retirement. Many courses covering various topics are available online or in person, allowing you to explore new interests and stay mentally active.

Focus on Your Health

Beyond addressing financial matters and finding ways to stay engaged, women must prioritize their health in retirement. This includes eating a balanced diet, exercising regularly, and getting the right amount of sleep. But your overall health includes more than just your physical body. Social engagement is also essential for happiness and health. Even for natural homebodies, spending time with others can have a positive impact.

It’s essential to remember that adjusting to retirement takes time. Transitioning into retirement can be a significant change for women who have dedicated many years to their careers. However, with careful preparation and consideration, women can make the most of this new phase of life. By addressing financial matters, finding ways to stay engaged, prioritizing health, and exploring new interests, women can embrace retirement as a new beginning and enjoy a fulfilling and rewarding experience. It is normal to experience a range of emotions after retirement, but these feelings will likely change over time. Being patient with yourself and understanding that it is a process may help alleviate frustration

1. Dol.gov, September 14, 2023

 

 

 

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2024 FMG Suite.

JMC Wealth Birthdays over 50

Important Birthdays Over 50

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Most children stop being “and-a-half” somewhere around age 12. Kids add “and-a-half” to make sure everyone knows they’re closer to the next age than the last.

When you are older, “and-a-half” birthdays start making a comeback. In fact, starting at age 50, several birthdays and “half-birthdays” are critical to understand because they have implications regarding your retirement income.

Age 50

At age 50, workers in certain qualified retirement plans are able to begin making annual catch-up contributions in addition to their normal contributions. Those who participate in 401(k), 403(b), and 457 plans can contribute an additional $7,500 per year in 2024. Those who participate in Simple Individual Retirement Account (IRA) or Simple 401(k) plans can make a catch-up contribution of up to $3,500 in 2024. And those who participate in traditional or Roth IRAs can set aside an additional $1,000 a year.1,2

Age 59½

At age 59½, workers are able to start making withdrawals from qualified retirement plans without incurring a 10% federal income tax penalty. This applies to workers who have contributed to IRAs and employer-sponsored plans, such as 401(k) and 403(b) plans (457 plans are never subject to the 10% penalty). Keep in mind that distributions from traditional IRAs, 401(k) plans, and other employer-sponsored retirement plans are taxed as ordinary income.

Age 62

At age 62 workers are first able to draw Social Security retirement benefits. However, if a person continues to work, those benefits will be reduced. The Social Security Administration will deduct $1 in benefits for each $2 an individual earns above an annual limit. In 2024, the income limit is $22,320.3

Age 65

At age 65, individuals can qualify for Medicare. The Social Security Administration recommends applying three months before reaching age 65. It’s important to note that if you are already receiving Social Security benefits, you will automatically be enrolled in Medicare Part A (hospitalization) and Part B (medical insurance) without an additional application.4

Age 65 to 67

Between ages 65 and 67, individuals become eligible to receive 100% of their Social Security benefit. The age varies, depending on birth year. Individuals born in 1955, for example, become eligible to receive 100% of their benefits when they reach age 66 years and 2 months. Those born in 1960 or later need to reach age 67 before they’ll become eligible to receive full benefits.5

Age 73

In most circumstances, once you reach age 73, you must begin taking required minimum distributions from a traditional Individual Retirement Account and other defined contribution plans. You may continue to contribute to a traditional IRA past age 70½ as long as you meet the earned-income requirement.

Understanding key birthdays may help you better prepare for certain retirement income and benefits. But perhaps more importantly, knowing key birthdays can help you avoid penalties that may be imposed if you miss the date.

1. If you reach the age of 50 before the end of the calendar year.
2. IRS.gov, 2023
3. SSA.gov, 2023
4. SSA.gov, 2023. Individuals can decline Part B coverage because it requires an additional premium payment.
5. SSA.gov, 2023

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2024 FMG Suite.

JMC Wealth IRA Deadlines

2023 IRA Deadlines Are Approaching
 : What You Need to Know

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2023 IRA Deadlines Are Approaching
What You Need to Know

Financially, many of us associate the spring with taxes—but we should also associate December with important Individual Retirement Account (IRA) deadlines. This year, like 2024, will see a few changes and distinctions.

Remember, this article is for informational purposes only. It is not a replacement for real-life advice, so consult your tax, legal, and accounting professionals for the most up-to-date information about IRA account deadlines and contribution strategies. 

The deadline to take your Required Minimum Distribution from traditional IRAs is December 31, 2024.

The deadline for making 2023 annual contributions to a traditional IRA, Roth IRA, and certain other retirement accounts is April 15, 2024.1 

Some people may not realize when they can make their IRA contribution. You can make a yearly IRA contribution between January 1 of the current year and April 15 of the next year. Accordingly, you can make your IRA contribution for 2024 any time from January 1, 2024, to April 15, 2025.1

A person can open or contribute to a Traditional IRA past age 72 as long as they have taxable income.2

If you make a 2023 IRA contribution in early 2024, you must tell the investment company hosting the IRA account for which year you contribute. If you fail to indicate the tax year that the contribution applies to, the custodian firm may make a default assumption that the contribution is for the current year (and note exactly that to the IRS).

So, write “2024 IRA contribution” or “2023 IRA contribution,” as applicable, in the memo area of your check, plainly and simply. Be sure to write your account number on the check. If you make your contribution electronically, double-check that these details are present.

 

Sources:

1. IRS.gov, November 22, 2023

https://www.irs.gov/newsroom/savers-credit-can-help-low-and-moderate-income-taxpayers-to-save-more-in-2024#:~:text=Contribution%20deadlines,Roth%20and%20traditional%20IRAs%20qualify.

2. IRS.gov, July 5, 2023

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

3. This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer or state-registered, or SEC-registered investment advisory firm. The opinions expressed and material provided here are for general information purposes and should not be considered solicitation for any security purchase or sale. Copyright 2023 FMG Suite.

  

JMC Wealth Taking Charge of 401K

Take Charge of Your 401K – Part 2

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Taking Your Plan to Your New Job

One of the best arguments in favor of rolling over your old retirement plan is that it can help simplify your life. In our experience, investors tend to lose track of accounts that aren’t right in front of them. Life gets busy, and failing to modify your investment strategies to keep up with your needs can undermine your long-term financial success.

Putting your assets in one place can help ensure that your investments remain consistent with your financial goals. If you are considering this choice, remember to take a look at your new employer’s plan before making the switch. First, make sure the new plan has the investment choices that you are looking for. Second, check out the fees associated with the new plan. And third, see when you can join the plan. In some instances, you have to wait until the next enrollment period.

Rolling 401(k) Assets into an IRA

You can elect to roll over your traditional 401(k) into a traditional IRA. To initiate the rollover, you’ll need to select an IRA provider and work with your 401(k) plan administrator. If the money is moved directly from your plan administrator to the IRA provider, no taxes are due on the assets that you move, and any new earnings accumulate tax deferred. In recent years, Roth 401(k) plans have been provided by more 401(k) plan administrators. Rolling over your Roth 401(k) is a similar process to rolling over a traditional 401(k). If the money is moved directly, no taxes are due on the assets that you move, and any new earnings accumulate tax deferred. 

Once you reach age 73, you must begin taking required minimum distributions from a traditional Individual Retirement Account in most circumstances. Withdrawals from traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth 401(k) distributions must meet a “ve-year holding requirement and occur a$er age 59½. Tax-free and penalty-free withdrawal can also be taken under certain other circumstances, such as the owner’s death. Employer matching is pretax and not distributed tax-free during retirement. 

 

 

 

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2023 FMG Suite.

These are the views of FMG Suite, LLC, and not necessarily those of the named representative, broker/dealer or investment advisor, and should not be construed as investment advice. Neither the named representative nor the named broker/dealer or investment advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your “nancial professional for further information.
Active men and women in retirement

5 Benefits of Working in Retirement

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5 Benefits of Working in Retirement

In the past, retirement has been portrayed as an ending, a grand exit from your years in the workplace. But the rules are shifting. Labor force participation among those aged 65-74 is predicted to reach 30.7 percent by 2031, up from just 25.8 percent in 2021. As the Boomer generation ages, more people are viewing retirement as an opportunity to enjoy the rewards of work in a whole new way. Read on to discover some of the benefits.1

1. BLS.gov, 2023

Mental Benefits

Working during retirement helps maintain mental agility as you learn new skills, which can help improve your thinking ability. People who pursue meaningful activities say they feel happier and healthier.2

2. NIH.gov, 2023

Physical Benefits

Staying active during retirement years is crucial for continued health. Whether you choose to work full time, or volunteer a few days a week, engaging in some form of work will keep your body moving, and give you opportunities to stay balanced, strong, and healthy.

 

Financial Benefits

Besides the obvious extra income, working during retirement may allow you to delay taking Social Security benefits. For every year you wait to take Social Security past your full retirement age (up until age 70), your benefits can increase by 8 percent annually. Finding a strategy that works for you can truly pay off.3

3. SSA.gov, 2023

Emotional Benefits

Studies have shown that a sense of purpose has been associated with a longer lifespan and better quality of life. Working on something you care about, starting a new business, or mentoring others in the workplace can ward off depression and provide a healthy sense of fulfillment and direction in your later years.4

4. TheHealthy.com, May 17, 2023

New retirement contribution limits

New Retirement Contribution Limits For 2023

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The Internal Revenue Service (IRS) has released new limits for certain retirement accounts for the coming year. After months of high inflation and financial uncertainty, some of these cost-of-living-based adjustments have reached near-record levels.

Keep in mind that this update is for informational purposes only, so please consult with an accounting or tax professional before making any changes to your 2023 tax strategy. You can also contact your financial professional, who may be able to provide you with information about the pending changes.

Individual Retirement Accounts (IRAs)

Traditional IRA contribution limits are up $500 in 2023 to $6,500. Catch-up contributions for those over age 50 remain at $1,000, bringing the total limit to $7,500.

Remember, once you reach age 72, you must begin taking required minimum distributions from a Traditional IRA in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.

Roth IRAs

The income phase-out range for Roth IRA contributions increases to $138,000-$153,000 for single filers and heads of household, a $9,000 increase. For married couples filing jointly, phase-out will be $218,000 to $228,000, a $14,000 increase. Married individuals filing separately see their phase-out range remain at $0-10,000.

To qualify for the tax-free and penalty-free withdrawal of earnings, Roth 401(k) distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal can also be taken under certain other circumstances, such as the owner’s death.

Workplace Retirement Accounts

Those with 401(k), 403(b), 457 plans, and similar accounts will see a $2,000 increase for 2023, the limit rising to $22,500. Those aged 50 and older will now have the ability to contribute an extra $7,500, bringing their total limit to $30,000.

Once you reach age 72 you must begin taking required minimum distributions from your 401(k) or other defined-contribution plans in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.

SIMPLE Accounts

A $1,500 increase in limits for 2023 gives individuals contributing to this incentive match plan a $15,500 stop light.

Much like a traditional IRA, once you reach age 72, you must begin taking required minimum distributions from a SIMPLE account in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.

As a reminder, this article is for informational purposes only. Consult with an accounting or tax professional before making any changes to your 2023 tax strategy.

 

 

 

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2022 FMG Suite.

Traditional vs Roth IRA

Traditional vs. Roth IRA

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Traditional Individual Retirement Accounts (IRA), which were created in 1974, are owned by roughly 36.6 million U.S. households. And Roth IRAs, created as part of the Taxpayer Relief Act in 1997, are owned by nearly 27.3 million households.1

Both are IRAs. And yet, each is quite different.

Up to certain limits, traditional IRAs allow individuals to make tax-deductible contributions into their account(s). Distributions from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 72, you must begin taking required minimum distributions.2,3

For individuals covered by a retirement plan at work, the deduction for a traditional IRA in 2022 is phased out for incomes between $109,000 and $129,000 for married couples filing jointly, and between $68,000 and $78,000 for single filers.4

Also, within certain limits, individuals can make contributions to a Roth IRA with after-tax dollars. To qualify for a tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½.

Like a traditional IRA, contributions to a Roth IRA are limited based on income. For 2022, contributions to a Roth IRA are phased out between $204,000 and $214,000 for married couples filing jointly and between $129,000 and $144,000 for single filers.5

In addition to contribution and distribution rules, there are limits on how much can be contributed each year to either IRA. In fact, these limits apply to any combination of IRAs; that is, workers cannot put more than $6,000 per year into their Roth and traditional IRAs combined. So, if a worker contributed $3,500 in a given year into a traditional IRA, contributions to a Roth IRA would be limited to $2,500 in that same year.6

Individuals who reach age 50 or older by the end of the tax year can qualify for “catch-up” contributions. The combined limit for these is $7,000.6

Both traditional and Roth IRAs can play a part in your retirement plans. And once you’ve figured out which will work better for you, only one task remains: open an account.7

 

Features of Traditional and Roth IRAs

 

Traditional IRA Roth IRA
Tax-deductible contributions Yes* No
Tax-deferred growth Yes Yes
Tax-free withdrawals No** Yes***
Income limit for 2021 contributions Deduction phases out for adjusted gross incomes between $109,000 and $129,000 (married filing jointly) or between $68,000 and $78,000 (single filer)4 Eligibility phases out for adjusted gross incomes between $204,000 and $214,000 (married filing jointly) or between $129,000 and $144,000 (single filer)5
Distributions required at age 72? Yes No

 

 

* Up to certain limits

** Distributions from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 72, you must begin taking required minimum distributions.

*** To qualify, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½.

1. ICI.org, 2022
2. IRS.gov, March 12, 2021. Under the SECURE Act, in most circumstances, once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA). You may continue to contribute to a Traditional IRA past age 70½ under the SECURE Act as long as you meet the earned-income requirement.
3. Up to certain limits, traditional IRAs allow individuals to make tax-deductible contributions into their account(s). Distributions from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 72, you must begin taking required minimum distributions.
4. IRS.gov, 2022
5. IRS.gov, 2022
6. IRS.gov, 2022
7. The Tax Cuts and Jobs Act of 2017 eliminated the ability to “undo” a Roth conversion.

 

 

 

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2022 FMG Suite.

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