Tax Breaks with an IRA

Tax Breaks with an IRA, man on beach, dog, retired

Tax Breaks with an IRA

What is an IRA?

Individual Retirement Arrangements – aka IRAs – are accounts into which someone can deposit money to provide financial security when they retire. Why would a taxpayer consider having one? Well, here’s what especially peaks our interest: different IRA’s offer different tax breaks.

How Do I Get One?

A taxpayer can set up an IRA with a:

  • Bank or other financial institution

  • Life insurance company

  • Mutual fund

  • Stockbroker

COMMON TERMS

Traditional IRA:

A traditional IRA is an individual retirement account that offers advantages to taxpayers. This will help you plan and save the way you want to for your retirement. Also, there are perks from the IRS that come with having one.

Contributions to a traditional IRA may be tax-deductible, but the amounts in a traditional IRA are not generally taxed until you take them out of the account.

  • With a retirement plan at work, our deduction may be limited if you (or your spouse, if you are married) are covered by a retirement plan at work and your income exceeds certain levels.
  • With no retirement plan at work, your deduction is allowed in full if you (and your spouse, if you are married) aren’t covered by a retirement plan at work.
Savings Incentive Match Plan for Employees:

SIMPLE IRA allows employees and employers to contribute to traditional IRAs set up for employees. It’s a great start-up retirement savings plan for small employers without a current retirement plan.

Simplified Employee Pension:

The SEP-IRA is a written plan that allows an employer to make contributions toward their own retirement. Simultaneously, it allows them to contribute towards their employees’ retirement without getting involved in a more complex qualified plan. An SEP is owned and controlled by the employee.

Roth IRA:

An IRA that is subject to the same rules as a traditional IRA with certain exceptions. For example, a taxpayer cannot deduct contributions to a Roth IRA. However, if the IRA owner satisfies certain requirements, qualified distributions are tax-free.

Contribution:

The amount of money someone puts into their IRA. There are limits to the amount that someone can put into their IRA annually, which are based on the age of the IRA holder and the type of IRA they have.

Distribution:

Essentially a withdrawal. This is the amount someone takes out from their IRA.

Required distribution:

A taxpayer cannot keep retirement funds in their account indefinitely. Someone with an IRA generally must start taking withdrawals from their IRA when they reach age 70½. Roth IRAs do not require withdrawals until after the death of the owner.

Rollover:

This is when the IRA owner receives a payment from a retirement plan and deposits it into a different IRA within 60 days.

IRAs are a great way to save for retirement. So, what does that mean for you, taxpayer?

Tax Breaks and Benefits

If you’re eligible, you can choose a traditional IRA for an up-front tax deduction and defer paying taxes until you take withdrawals in the future. Or, you might opt for a Roth IRA and contribute after-tax money in exchange for tax-free distributions down the road. Talk with an enrolled agent to help you decide what would be better for you and your retirement down the road.

Is there a catch?

Sure is. Actually, there are plenty. If you bend the IRS’ rules surrounding these accounts, your account could be disqualified and the entire thing could be taxed if you’re not careful. Ignorance of the law is no excuse, and with few exceptions, the IRS isn’t very forgiving of mistakes. Having an enrolled agent, like Jeffrey Schneider, EA, CTRS, who knows the law of the land, can help you navigate the possible tax breaks as well as the IRA tax traps you might encounter on your way to retirement.

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Jeffrey Schneider, EA, CTRS, NTPI Fellow has the knowledge and expertise to help you reach a favorable outcome with the IRS. He is the head honcho at SFS Tax & Accounting as well as an Enrolled Agent and a Certified Tax Resolution Specialist.
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Now What? I Got A Tax Notice From The IRS. Help! Defining and deconstructing the scary and confusing letters that land in your mailbox. Jeff defines and deconstructs the scary and confusing letters in a fashion that mixes attention to detail with humor and an intricate clarification of what is what in the world of the IRS.

The book is available in paperback and ebook on https://Amazon.com
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For more on SFS Tax & Accounting Services, visit http://sfstaxacct.com/
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Phone: 772-337-1040
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