If you are thinking of switching to an IRA, congratulations. You are a genius. For those of you who need a little more information before you overhaul your retirement plan, I applaud your homework. Here are some answers to the biggest questions concerning IRAs.
1. Is my IRA contribution deductible?
If you and your spouse do not have an employer retirement plan, such as a 401k, your deduction is allowed in full. The amount you can deduct is limited in accordance with your income level.
Roth IRA’s contributions are not tax deductible.
2. Can I contribute to a traditional or Roth self-directed IRA if I’m covered by a retirement plan at work?
Hell yes. However, if you or your spouse pay into an employer sponsored plan and your income is high, you may not be able to deduct your entire contribution. Nonetheless, you can rest easy knowing that you’ve worked hard to get into a high tax bracket and your retirement is in a good place.
3. Can I establish a self-directed IRA if only my spouse is making income this year?
Yes, both you and your spouse can make contributions even if you’re a deadbeat. Your combined contribution cannot exceed the taxable compensation reported and you cannot pay in more than the max, but you can certainly pay in. (For 2017 $5500 or $6500 if over the age of 50).
4. How can I make a Roth IRA contribution if I’ve made too much money this year?
If you’ve earned more than $181,000.00 this year the IRS is going to reduce the maximum amount of Roth contributions permitted for the year if they allow you any.
To get around this, you need to make a traditional IRA contribution AFTER TAX, and then convert it to a Roth IRA. Because it’s after tax, there won’t be any tax on the conversion.
This tactic was made possible when the IRS removed the income level restrictions for making Roth conversions in 2010.
5. Can I make IRA contributions after 70 ½?
This is one of the real beauties of the Roth. Unlike a traditional IRA, you can pay into this bad boy even if you live to be a thousand, though if advances in medical technology get us to that point, you can expect the IRS to review it’s rules.
We hope this helps clear up the confusions where IRA’s and Roth IRA’s are concerned. Thanks for tuning in. This has been Money Matters.