Do I qualify for a traditional IRA? What are the rules that I should be aware of when opening this type of individual retirement account? If you have been asking yourself such questions, then you are in the right place, because I will be presenting you with enough information to help you get started on the right foot, as far as traditional IRAs are concerned. Read on till the end to find out more.

P.S:

See our top-5 recommended Gold & Silver IRA service providers

Introduction

Traditional IRAs and Roth IRAs share a number of characteristics, but you should be in a position to tell them apart. You should know whether you qualify for either account and what it means to you as an investor moving forward. To get started, let me present a quick summary of the traditional IRA rules that you should know, to help you know whether you have what it takes to open one.

• The maximum annual contribution limit for those aged below 50 is $6000 and $7000 for those aged 50 (and over 50). Note that the limits change from year to year, so you always confirm this with your IRA service provider.
• Your contributions may be tax-deductible in the year that you make them.
• Investments within your traditional IRA grow tax-deferred.
• The withdrawals upon retirement get taxed as ordinary income.
• According to the IRS, you should be ready to take the Required Minimum Distributions (RMDs), upon hitting 72 years (Or 70 ½ for those who turned 70 ½ in 2019, or earlier).
• Those who take unqualified withdrawals, or before hitting 59 ½ years, end up triggering a 10% early withdrawal penalty and have to pay income taxes on their withdrawals.

Traditional IRA contribution rules

For you to qualify to open a traditional IRA, you need to have an earned income. Also, you should know that your annual contributions to your traditional IRA should not exceed your annual earnings. Otherwise, as already highlighted above, the contribution limits in 2021 and 2022 are as follows:

• $6000 for those aged below 50
• Or, $7000 for those 50 or older (the extra $1000 is known as a catch-up contribution).

Some other contribution rules you should be aware of include:

• You are allowed to contribute to both a traditional IRA and a Roth IRA at the same time, in the same year

The IRS allows those who qualify for the two types of IRAs to contribute to them at the same time, provided that the combined contribution amount does not go beyond the annual limit of $6000 or $7000.

• Those who do not qualify to make deductible contributions can still put some funds into a traditional IRA

In the case of Roth IRAs, those who make an insane amount of money are not allowed to open and contribute to an account.

• There are no minimum deposits during the IRA account opening process

Some brokers may set their own account minimum, but the IRS does not require that you get started by depositing a given amount of money, provided you make the contributions and do not exceed the limits by the end of the year.

• You can make contributions to your traditional IRA and to your 401(k) at the same time (in the same year)

This is allowed, provided that you stay within the required contribution limits for each type of account.

***See these highly recommended Gold & Silver IRA Service Providers

Deduction Rules Followed by Traditional IRA account owners

One of the questions that most people ask is “how much of their contributions they are allowed to deduct from their taxes”. The truth of the matter is that deductibility is based on one’s income, as well as whether the person in question or their spouse is covered by an employer-sponsored retirement plan, e.g. a 401(k). If neither you nor your spouse has an employer-sponsored plan, then the deduction can be done on all your contributions, up to the set limit.

Withdrawal rules followed by traditional IRA account holders

The IRS considers age 59 ½ quite significant, in that it is the age at which those nearing their retirement years are allowed to start taking their withdrawals from their individual retirement accounts. Remember that trying to take withdrawals before meeting this age requirement (hitting 59 ½ years) can lead to the IRS penalizing you (a 10% early withdrawal penalty), and some extra income taxes.

Under the new IRS rules, those who live to age 72 and have been saving in a traditional IRA are required to start taking their required minimum distributions (RMDs). Investors were previously required to take their RMDs upon hitting 70 ½ years, which was the case until the end of 2019 when the rules were changed. Those who fail to take their RMDs are usually in deep trouble since the IRS starts punishing them with a 50% excise tax on the amount of money they fail to withdraw.

Exceptions for the 10% withdrawal penalty

If you need the funds in your traditional IRA before hitting 59 ½ years, then you can confirm if the reason you need the money is exempted from the hefty 10% withdrawal penalty. Below are the instances in which you can take early withdrawals and only pay income tax:

• If the IRS deems your request for higher education expenses worthy of approval. You can, in this case, use the funds to meet the costs of higher education for yourself, your spouse, children, or grandchildren.
• As a member of the military, you can take your withdrawals if you’re required to be on active duty for over 179 days.
• In case you become disabled, either totally or permanently.
• Those who want to purchase, build or rebuild their first home (based on IRS rules of a first home), can take up to $10,000 of the funds in their account for this purpose.
• People with unreimbursed medical expenses that are over 7.5% of their adjusted gross income are also allowed to take distributions.
• If you are the legal beneficiary of the deceased traditional IRA owner.
• According to the new Secure Act, those who become parents through birth or adoption can take distributions of up to $5000.

Based on what you read above, you can decide whether to open a traditional IRA or simply take an alternative route. You may also want to expand your retirement investment options, by opening self-directed IRAs. Check out our top-recommended self-directed IRAs that allow investors to build their wealth by investing in gold.

See Gold Retired’s Top-5 Recommended Gold and Silver IRA Solutions

OR

See Gold Retired’s Top-5 Recommended Bitcoin IRA Solutions

That will be all for this article in which we have responded to the question “Do I qualify for a traditional IRA?” I hope that reading the article has presented you with the insights to help you answer the question from a personal point of view. I would be pleased to know what you think about opening a traditional IRA- drop them in the comments section.

I wish you well,

Eric, Investor and Team Member at Gold Retired!

Do I qualify for a Roth IRA? What rules determine whether I qualify? Are there more details about how Roth IRAs operate that I should know before opening one? These are some of the questions that you may have in mind if you are considering using a Roth IRA as your retirement investment vehicle. In today’s article, I will take you through much of what you need to know before you get started, so read on till the end to find out more.

P.S:

See our top-5 recommended Gold & Silver IRA Service Providers

Introduction

Roth IRAs can be a great way to put aside funds for your retirement years. Unlike Traditional IRAs, Roth IRAs allow investors’ funds to grow tax-free. As a Roth IRA owner, you can also take tax-free withdrawals of your contributions at any time. Note that your investment earnings from the Roth IRA cannot be withdrawn at any time, and there are rules that you must stick to when withdrawing them.

Do I qualify for a Roth IRA? – Roth IRA Eligibility

The first primary requirement for one to open and contribute to a Roth IRA is having an earned income. Eligible income is classified into two, as explained below:

• The first type of eligible income is one in which you get to work for someone who pays you. This also includes all the commissions, tips, bonuses, and taxable fringe benefits that you get as you work for the person who has employed you.
• The second type of eligible income is opening and running your own business or firm.

Other types of income that are treated as earned income when one is making Roth IRA contributions are:

• Taxed alimony
• Untaxed combat pay
• Military differential pay

Any type of income that you get from your securities, rental properties, or other assets is viewed as unearned income, hence can’t be contributed to your Roth IRA. Below are some other types of income that are not perceived as earned income:

• Child support
• The wages earned by penal institution inmates
• Nontaxable alimony
• Social security retirement benefits
• Unemployment benefits

There is no age threshold or limit for one making Roth IRA contributions. Does this mean that even teenagers who are taking summer jobs can open and fund IRAs? Yes, they can. The account may have to be a custodial account if they are underage.

On the other end of the spectrum, employed people who are in their 70s can still continue making their contributions to their Roth IRAs. People of all ages are also allowed to contribute to traditional IRAs. In the past, however, those with traditional IRAs could not make contributions to their accounts after hitting 70 ½ years. The December 2019 SECURE Act however made it possible for people to make traditional IRA contributions with no age cutoffs/restrictions.

Also, the fact that you have another qualified retirement plan does not mean that you are not eligible to contribute to a Roth IRA. If you, as such, have the money, and you meet the set income limitations, you are free to contribute to a 401(k) plan at work as you also contribute to a Roth IRA.

Roth IRA Income Limits

Your eligibility to contribute to a Roth IRA also depends on the amount of money you earn annually. The IRS does not allow high-income earners to open and contribute to a Roth IRA. The income limits are based on a person’s modified adjusted gross income (MAGI), as well as their tax filing status.

MAGI = Adjusted Gross Income (AGI) from your tax return + Deductions (student loan interest, self-employment taxes, or even higher education expenses).

In 2022, you are allowed to make full Roth IRA Contributions provided that you earn less than $129,000, or partial contributions up to the set maximum MAGI of $144,000. If you and your partner are filing jointly, your income limits are set at $204,000 and $214,000 respectively.

Most people usually qualify to make the maximum possible contributions to a Roth IRA, which is $6000 ( or $7000 for those aged 50 and above). If your MAGI falls within the Roth IRA phase-out range, you can make partial contributions. You are, however, not allowed to open a Roth IRA or make contributions to one, if your MAGI falls outside the limits.

Note that the IRS usually updates the Roth IRA income limits each year, due to factors such as inflation, and other changes in the national and global economy.

**See our highly recommended Gold & Silver IRAs – Read The Full & Updated Review

Roth IRA Withdrawal Rules

Unlike traditional IRA owners, you do not have to worry about the Required Minimum Distributions (RMDs) if you are a Roth IRA owner. You can start withdrawing your Roth IRA contributions at any time, for any reason, without owing taxes or penalties.

Withdrawals on your Roth IRA investment earnings work differently. Generally, you are allowed to withdraw the earnings with no penalties or taxes provided that you are 59 ½ years or older, and have been a holder of the account for not less than 5 years. This is referred to as the five-year rule.

Your withdrawals may as such be subject to taxes or a 10% penalty, depending on your age, as well as whether you meet the five-year rule.

The who meet the five-year rule is:

• Under 59 ½ years – your retirement earnings are subject to taxes and penalties. You may, however, avoid the taxes if you are withdrawing the money to meet your needs owing to disability, or to purchase a first-time home. Also, upon passing away, your beneficiaries may withdraw the money without getting taxed.
• 59 ½ years and above – do not get penalized or taxed.

Those who fail to meet the five-year rule, and are:

• Under 59 ½ years – have their earnings subjected to taxes and penalties. They may only avoid the penalties on their distributions if they want to make first-time home purchases, meet the higher education expenses, or have unreimbursed medical expenses. Their beneficiaries may also avoid penalties on distributions taken upon death.
• 59 ½ years – the earnings are subject to taxes, not penalties

As you check whether you qualify for a Roth IRA, you can also check whether you qualify to invest in a self-directed IRA, through which you can build wealth by investing in non-traditional assets such as gold and silver. Check out our top-recommended Gold & Silver IRA service providers below:

See Gold Retired’s Top-5 Recommended Gold and Silver IRA Solutions

OR

See Gold Retired’s Top-5 Recommended Bitcoin IRA Solutions

That will be all for this article, in which we have answered the question, “Do I qualify for a Roth IRA?”. I hope the article was educational and helpful, and that you now know what to do about opening this type of retirement investment plan. Let me know if you have any questions about today’s topic, or about self-directed IRAs.

I wish you well,

Eric, Investor and Team Member at Gold Retired.

What are the benefits of a Roth IRA? Today we shall take a look at what investors stand to gain by opening Roth IRAs and using them to save and invest for their retirement years. By the end of this post, you will have a couple of pointers to help reflect upon the decision to either open a Roth IRA or to check out other alternatives. Read on to discover more.

P.S:

See our top-5 recommended Gold & Silver IRA service providers

The Roth IRA has been beloved for those who use it, and for a good reason. Regardless of your current age, this retirement investment vehicle presents you with several benefits. The amount of money you can save in your Roth IRA changes from time to time, though a provision is made for those who are aged over 50, in the way they are allowed to save an extra amount of money, referred to as a catch-up contribution. This is similar to what those with traditional IRAs get. 

The main difference between Roth and traditional IRAs lies in when one is required to pay their taxes, and how much money ultimately goes to the taxman.  According to most financial planners, it is advisable for people to invest in a Roth when they are younger, since they are bound to enjoy more of its benefits. That does not mean that a Roth IRA is not a good option for people of other ages. 

Below are some of the top benefits of a Roth IRA.

It allows you to get tax-free income during your retirement years

With a Roth IRA, account holders get tax-free streams of income during their retirement years. This is not just for the contributions that one makes- this also applies to the investment earnings as well. This can be such a good deal for you, more so when you are looking at it from the perspective of a long-term investor, who is willing to hold on to their assets for several decades. 

The only catch is that you are required to pay the taxes on the contributions upfront.

This is unlike what you get with a traditional IRA, in the way the IRS gives you a tax deduction for the year you make your contributions. With a Roth IRA, an investor contributes after-tax money right away, and they withdraw their principal and earnings tax-free upon getting to their retirement years. 

For individuals who are looking for ways to diversify their retirement portfolio, a Roth IRA is a suitable option for them, since it ensures that they get to eventually enjoy a stream of tax-free income in retirement. 

*** See also other alternatives if you want to diversify your retirement investment portfolio.

Your heirs benefit from your account 

Roth IRA owners also have a great benefit in the way the IRS does not bother them anymore after they have paid their taxes on their contributions. They can, in fact, leave their beneficiaries tax-free income that can be stretched over a very long period of time into the future. 

The good thing is that this type of account allows you to prepay taxes for future generations so that they will not have the tax man on their backs. 

You can think of a Roth IRA as your estate-planning tool if the thought of leaving your grandchildren tax-free income has crossed your mind. The fact that they do not have to pay taxes in the future means that they will have a significant boost in their wealth status. 

They grant you easier access to your money

A Roth IRA has the properties of an emergency account, in that you withdraw your contributions whenever you need some money to meet some urgent needs. The after-tax contributions made to a Roth IRA can be accessed at any time, although this is not highly encouraged. 

The fact that you opened a Roth IRA to deposit your retirement savings means that you had earmarked those funds for future use. That said, however, you can still access the funds when the nature of your financial needs demands so. 

To withdraw more than just your contributions, you must be older than 59 ½ years, and your account must have been opened more than 5 years prior to taking your distribution. There are, however, some qualified distributions, if you are below 59 ½ years, or you have not held the account longer than 5 years, which include:

• Permanent disability 
• Back taxes 
• Meeting health insurance expenses if you are unemployed
• Catering for the unreimbursed medical expenses that exceed 10% of one’s adjusted gross income, or 7.5% for those aged 65 years and above. 

Even high-income earners can open a backdoor Roth IRA 

Most high-income earners are generally locked out from opening or making contributions to Roth IRAs. This is because the IRS has set income thresholds that determine those who are allowed to open IRAs. Anyone above the set threshold cannot make direct contributions to their IRA.

There is, however, a way around this,  in the way those people who earn a lot of money (more than $140,000 annually), can still make nondeductible contributions to traditional IRAs, then convert it to a Roth IRA. This is referred to as a backdoor Roth. Anyone can create a nondeductible IRA, then later convert it to a Roth IRA, so that they do not miss out on the benefits offered by this type of account. 

Note that the IRS requires that you consider the necessary pretax holdings when establishing the tax liabilities that will arise from the conversion. The backdoor Roth conversion is quite complicated and requires a tax professional’s guidance and expertise.

It can be the best option for long-term investors

For those who do not want to face today’s tax bill, then opening and making contributions to a traditional IRA is the way to go. If the tax situation today does not look good, and you expect it to be more pleasant when you retire, then you should proceed to open a 401(k) or a regular IRA. Taking advantage of tax breaks today may, however, leave many valuable advantages of a Roth IRA untapped. 

Those who are eligible for a Roth IRA can maximize the benefits received during their retirement years. No one can successfully predict how the tax situation will be in the future ( at least not all the time), so it can be a good idea to get done with the taxes and to focus on growing one’s wealth. This ensures that when it is time to take withdrawals, the investor will not have anyone trying to take a piece of their savings or earnings. 

You can also consider opening a self-directed IRA, which is also a great retirement investment vehicle. Read our review of the best gold IRAs today.

See Gold Retired’s Top-5 Recommended Gold and Silver IRA Solutions

OR

See Gold Retired’s Top-5 Recommended Bitcoin IRA Solutions

That will be all for today’s article on what the benefits of a Roth IRA are. If you found it helpful, do let me know by dropping me a comment (below). You can also ask me any question with regards to other types of IRAs, including the gold IRAs recommended above.

I wish you well,

Eric, Investor and Team Member at Gold Retired!

Which is better between an IRA and a  401(k)? Do the two retirement investment vehicles have similar benefits or are they significantly distinct? What should you know about either account before opening one? Today’s post will take you through this IRA vs 401(k) debate so that you can gain enough information to help you decide which one you will be opening. Stick on till the end to find out more. 

P.S:

See our top-5  list of Gold & Silver IRA service providers here

401(k)s and Individual Retirement Accounts (IRA)s are very useful when one is saving for their retirement years. If you are getting started with saving for your future, but you are not very certain about the options to choose, it can be quite useful to know the pros and cons of each type of account. Doing this helps you know what you are getting yourself into so that you do not end up losing your hard-earned money. 

Let’s start by seeing how each type of account works. 

How does a 401(k) work?

You are only capable of accessing a 401(k) if it is offered by an employer. In some companies, you’ll also be required to work for a given period, say months or years, before becoming eligible to open a 401(k). 

A 401(k), which is also referred to as a defined contribution plan, allows employees to make contributions (usually a percentage of their salary), to their company’s retirement plan. 401(k) contributions happen through payroll deductions, in that a certain amount of money has to be taken from your paycheck, and channeled to your account. 

There are also some companies that offer to make contributions for or on behalf of their eligible employees. A common type of this type of employer contribution is the 401(k) match, in which the amount contributed depends on the employers’ policies. The matching contribution is in most cases anything between 2% and 10% of an employee’s income and is in most cases usually contingent upon the level of participation of the employee. 

IRS requirements & rules

Every year, the IRS announces the limits on the amount of money you can contribute to your 401(k). Those who are younger than 50, can deposit not more than $19,500 in their 401(k) account. Employees aged 50 or above can place an extra  $6500 in their 401(k), which leads to a total contribution of $26,000. There are also some limits for the high-income employees, which are also set by the IRS. 

Those who contribute to 401(k) accounts have to wait until 59 ½ to start withdrawing the funds in their account, to avoid penalties. The standard penalty for those who withdraw their money before 59 ½ years is 10% of the money that they withdraw. They also have to pay taxes on their withdrawal. There are, however, some exceptions to the early-withdrawal penalty, such as when you decide to leave your job when you are 55 years or older- you can, in this case, decide to take penalty-free withdrawals from your 401(k). 

Upon hitting 72 years, you are required to start taking required minimum distributions. You can, however, delay the RMDs if you are still working. Some employers offer their employees traditional 401(k)s and Roth options. With traditional 401(k)s, employees do not pay taxes on the amount they deposit into their accounts, but their withdrawals are considered taxable income. People, on the other hand, deposit after-tax dollars into their Roth accounts, so that they do not have to pay taxes on the distributions they take during retirement. 

**See the alternative to opening a 401(k)- Our full updated review of highly-recommended gold & silver IRAs

How does an IRA work?

For you to create and contribute to an IRA, you must have an earned income. There are, however, some exceptions to this rule. Those who are married and file their tax returns jointly can make contributions to their spousal IRAs for their nonworking spouse. There are also income limits placed on those who want to open IRAs. For instance, if your modified gross income goes over $140,000 for a single person or $208,000 for those who file jointly, then they cannot open a Roth IRA.

Those who have an IRA but have not turned 50 are allowed to deposit $6000 into their accounts. If you are 50 or older, then the IRS rules state that you can only contribute $7000 to your IRA. 

With an IRA, you can decide how you will invest your funds. Most IRAs allow people to invest in paper assets such as bonds, ETFs, and stocks. You can also have a financial advisor help you sort out your options and fees. 

Two types of IRAs

There are two types of IRAs – traditional and Roth IRAs. Traditional IRA account holders do not pay taxes on the funds that they contribute to their account, but the distributions they take during their retirement years are taxed. One must be at least 59 ½ years to start withdrawing their funds with no penalties. Withdrawing funds before this age attract a 10% penalty on the total amount withdrawn, along with taxes on the withdrawals. 

Saving for your retirement using a Roth IRA allows you to make after-tax contributions to your account. The withdrawals are generally not subject to taxes. Roth IRA account holders can withdraw their contributions to the account at any time. They cannot, however, withdraw the earnings from their investments if their account is not at least 5 years old. 

Unlike traditional IRAs, Roth IRAs do not mandate people to start taking distributions at a certain age. 

The main differences between 401(k)s and IRAs 

Despite there being some similar features between Roth IRAs and traditional IRAs, these two types of accounts have their unique features as well. The main differences between the two accounts are:

• Anyone who has an earned income is eligible to open an IRA, but one can only open a 401(k) through or under their employer.
• IRAs generally have more investment choices than 401(k)s
• A 401(k) is better for those who want higher contribution limits.
• You can get an employer match with a 401(k), but not an IRA

I believe that the perception of which of the two accounts is better differs significantly based on the above-listed differences. You are best-placed to decide on the elements of either account that you cannot do without, based on your personal financial needs and objectives. You can also take a look at what self-directed IRAs have to offer, just to establish whether you have better chances of making more retirement investment income by opening one. Check out our reviews of the top-recommended self-directed IRA service providers:

See Gold Retired’s Top-5 Recommended Gold and Silver IRA Solutions

OR

See Gold Retired’s Top-5 Recommended Bitcoin IRA Solutions

That will be all for this article in which we have looked at “which is better between an IRA and a 401(k)?” My hope is that you found the article informative, and that you’re now in a position to decide on which of the two accounts is worth using as you save for your retirement years. Let me know what your thoughts are about the types of retirement savings accounts, in the comments section.

I wish you well,

Eric, Investor and Team Member at Gold Retired!