The Reference Section

A collection of wealth improvement articles

Take another look at individual retirement accounts

You may have considered an individual retirement account (IRA) at some time in the past. But perhaps you didn't qualify for tax-deductible contributions, or you couldn't contribute much because you were a stay-at-home spouse. Or maybe you just didn't want to lock your money away for so many years. Well, under today's tax rules, everyone should take another look at the IRA.

Roth IRAs

First of all, there's the Roth IRA. Contributions to a Roth IRA aren't tax-deductible, but principal and earnings are never again subject to tax if certain rules are met. Subject to income limitations, working individuals and nonworking spouses can each contribute up to $5,500 to a Roth IRA for 2018 and $6,000 2019. An additional $1,000 catch-up contribution is allowed for those 50 and older.

 Conversion to a Roth

It might make sense for you to convert your existing IRA to a Roth IRA. A conversion lets you enjoy the long-term benefits of a Roth IRA. You must generally pay regular income tax on the amount transferred from your existing IRA.

 Other IRA Rules

Whether or not you qualify for a Roth, today's tax laws make the traditional IRA worth reconsidering.

  • If you are not covered by an employer's plan, a traditional IRA contribution is deductible no matter how much you earn. Your nonworking spouse may also make a fully deductible contribution of up to $5,500 for 2018 and $6,000 2019 (plus an extra $1,000 if your spouse is 50 or over).
  • If you are single and covered by a pension plan at work, your deductible IRA starts to phase out when your income for 2019 reaches $64,000 (63,000 in 2018), becoming fully nondeductible at $74,000 (73,000 in 2018).
  • If you are married and covered by an employer plan, the 2019 phase-out range for tax-deductible IRA contributions is $103,000 to $123,000 of income ($101,000 to 121,000 in 2018).
  • One spouse's company coverage doesn't make the other spouse ineligible for a deductible IRA until joint income reaches the phase-out range of $193,000 to $203,000 in 2019 ($189,000 to 199,000 in 2018).
  • A 10% penalty generally applies if you withdraw IRA money before age 59½. You may avoid penalties (but not necessarily income tax) on premature withdrawals from your regular or Roth IRAs if you use the withdrawals for certain purposes - for example, to pay qualified higher education expenses or to buy a first-time home.