roth ira - Linkenheimer LLP CPAs & Advisors

The Ins and Outs of IRAs

ribution amount

Traditional IRAs and Roth IRAs have been around for decades and the rules surrounding them have changed many times. What hasn’t changed is that they can help you save for retirement on a tax-favored basis. Here’s an overview.

Traditional IRAs

You can make an annual deductible contribution to a traditional IRA if:

You (and your spouse) aren’t active participants in employer-sponsored retirement plans, or
You (or your spouse) are active participants in an employer plan, and your modified adjusted gross income (MAGI) doesn’t exceed certain levels that vary annually by filing status.

For example, in 2022, if you’re a joint return filer covered by an employer plan, your deductible IRA contribution phases out over $109,000 to $129,000 of MAGI ($68,000 to $78,000 for singles).

Deductible IRA contributions reduce your current tax bill, and earnings are tax-deferred. However, withdrawals are taxed in full (and subject to a 10% penalty if taken before age 59½, unless one of several exceptions apply). You must begin making minimum withdrawals by April 1 of the year following the year you turn age 72.

You can make an annual nondeductible IRA contribution without regard to employer plan coverage and your MAGI. The […]

By Linkenheimer LLP|2022-02-04T00:02:08+00:00February 4th, 2022|deduction, deductions, ira|0 Comments

Get Credit for IRA Contributions Made by April 15 on 2020 Tax Returns

The Internal Revenue Service notes that taxpayers of all ages may be able to claim a deduction on their 2020 tax return for contributions to their Individual Retirement Arrangement made through April 15, 2021. There is no longer a maximum age for making IRA contributions.

An IRA is designed to enable employees and the self-employed to save for retirement. Most taxpayers who work are eligible to start a traditional or Roth IRA or add money to an existing account.

Contributions to a traditional IRA are usually tax deductible, and distributions are generally taxable. There is still time to make contributions that count for a 2020 tax return, if they are made by April 15, 2021. Taxpayers can file their return claiming a traditional IRA contribution before the contribution is actually made. The contribution must then be made by the April due date of the return. While contributions to a Roth IRA are not tax deductible, qualified distributions are tax-free. In addition, low- and moderate-income taxpayers making these contributions may also qualify for the Saver’s Credit.

Generally, eligible taxpayers can contribute up to $6,000 to an IRA for 2020. For […]

By Linkenheimer LLP|2021-03-12T17:04:38+00:00March 12th, 2021|401k, ira, retirement|0 Comments

Didn’t Contribute to an IRA Last Year? There Still May Be Time

If you’re getting ready to file your 2020 tax return, and your tax bill is higher than you’d like, there might still be an opportunity to lower it. If you qualify, you can make a deductible contribution to a traditional IRA right up until the April 15, 2021 filing date and benefit from the tax savings on your 2020 return.

Who is eligible?

You can make a deductible contribution to a traditional IRA if:

You (and your spouse) aren’t an active participant in an employer-sponsored retirement plan, or
You (or your spouse) are an active participant in an employer plan, but your modified adjusted gross income (AGI) doesn’t exceed certain levels that vary from year-to-year by filing status.

For 2020, if you’re a joint tax return filer and you are covered by an employer plan, your deductible IRA contribution phases out over $104,000 to $124,000 of modified AGI. If you’re single or a head of household, the phaseout range is $65,000 to $75,000 for 2020. For married filing separately, the phaseout range is $0 to $10,000. For 2020, if you’re not an active participant in an employer-sponsored retirement plan, but your spouse is, your deductible […]

By Linkenheimer LLP|2021-02-23T19:09:40+00:00February 23rd, 2021|contributions, ira, retirement, roth ira|0 Comments

Selling Securities by Year End? Avoid the Wash Sale Rule

If you’re planning to sell assets at a loss to offset gains that have been realized during the year, it’s important to be aware of the “wash sale” rule.

How the rule works

Under this rule, if you sell stock or securities for a loss and buy substantially identical stock or securities back within the 30-day period before or after the sale date, the loss can’t be claimed for tax purposes. The rule is designed to prevent taxpayers from using the tax benefit of a loss without parting with ownership in any significant way. Note that the rule applies to a 30-day period before or after the sale date to prevent “buying the stock back” before it’s even sold. (If you participate in any dividend reinvestment plans, the wash sale rules may be inadvertently triggered when dividends are reinvested under the plan, if you’ve separately sold some of the same stock at a loss within the 30-day period.)

Keep in […]

By Linkenheimer LLP|2020-09-03T20:03:33+00:00October 22nd, 2019|income tax, individuals, investment, retirement, roth ira|0 Comments

The TCJA Prohibits Undoing 2018 Roth IRA Conversions, but 2017 Conversions are Still Eligible

Converting a traditional IRA to a Roth IRA can provide tax-free growth and tax-free withdrawals in retirement. But what if you convert your traditional IRA — subject to income taxes on all earnings and deductible contributions — and then discover you would have been better off if you hadn’t converted it?

Before the Tax Cuts and Jobs Act (TCJA), you could undo a Roth IRA conversion using a “re-characterization.” Effective with 2018 conversions, the TCJA prohibits re-characterizations — permanently. But if you executed a conversion in 2017, you may still be able to undo it.

Reasons to recharacterize

Generally, if you converted to a Roth IRA in 2017, you have until October 15, 2018, to undo it and avoid the tax hit.

Here are some reasons you might want to recharacterize a 2017 Roth IRA conversion:

The conversion combined with your other income pushed you into a higher tax bracket in 2017.
Your marginal income tax rate will be lower in 2018 than it was in 2017.
The value of your account has declined since the conversion, so you owe taxes partially on money you no longer have.

If you re-characterize your 2017 conversion but would still like to convert your traditional IRA […]

By Linkenheimer LLP|2018-08-14T18:09:19+00:00August 14th, 2018|contributions, New Tax Laws, roth ira|0 Comments