The Benefits of an IRA
Have you forgotten your IRA?
If you don’t have one, should it be part of your overall investment plan?
Here are some compelling reasons why this vehicle can help you plan for your future.
Tax deferral: Traditional IRAs allow your investment earnings to grow tax deferred until withdrawn, typically at retirement. For 2019, the maximum contribution is $6,000, but for those aged 50 and over, the limit is $7,000.
Deductibility: If you are a single taxpayer who doesn’t participate in an employer-sponsored plan and you earn less than an amount set each year by the IRS, you can deduct your contributions to a traditional IRA off your income taxes. Note that Roth IRA contributions are not deductible.
Investment flexibility: IRAs typically give investors access to a wider range of investment options. Depending on the financial institution you use to open your account, you can invest in a broad array of mutual funds, ETFs, individual stocks and bonds, CDs, annuities, even real estate investment trusts (REITs).
Convertibility: Traditional IRA holders can convert to a Roth IRA to enjoy some of the additional benefits listed below. But before you decide to make a switch, be sure to investigate the tax consequences of such a move.
Additional Benefits of Roth IRAs
- Qualified tax-free withdrawals: Since Roth IRAs are funded with after-tax dollars, your withdrawals are tax free, as long as you have held the account for at least five years and are over age 59 1/2.
- No RMDs: Unlike traditional IRAs, Roth IRAs are not subject to required minimum distributions (RMDs) once the accountholder reaches age 70 1/2.
Contact your LPL Financial Consultant to discuss a strategy for your IRA or to see if investing in an IRA makes sense for you. Withdrawals made prior to age 59 1/2 are subject to 10% IRS penalty tax. (In the case of a Roth, it must be held five years as well.) Gains from tax-deferred investments are taxable as ordinary income upon withdrawal.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 1/2 may result in a 10% IRS penalty tax in addition to current income tax.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.