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When considering Roth IRA vs Traditional IRA contributions, it’s important to understand the key differences in how these retirement accounts handle contributions. Here’s a breakdown of contributions for Roth IRA and Traditional IRA:

Roth IRA Contributions:

1. Tax Treatment:
   • Roth IRA contributions are made with after-tax dollars. This means you contribute money that has already been subject to income tax.
2. Contribution Limits:
   • As of 2023, the annual contribution limit for Roth IRA is $6,500 ($7,500 if you’re age 50 or older).
   • The IRA contribution limits for 2024 are $7,000 for those under age 50, and $8,000 for those age 50 or older. You can make 2024 IRA contributions until the unextended federal tax deadline (for income earned in 2024).

1. Income Limits:
   • There are income limits for contributing to a Roth IRA. In 2023, the ability to make a full Roth contribution begins to phase out for single filers with a modified adjusted gross income (MAGI) above $138,000 and for married couples filing jointly with a MAGI above $218,000.
2. Age Limit:
   • Roth IRAs do not have age limits for making contributions. You can contribute at any age as long as you have earned income.
3. Distribution of Earnings:
   • Qualified distributions of earnings from a Roth IRA are tax-free. To be qualified, the account must be open for at least five years, and the distribution must occur after age 59½, due to disability, or for a first-time home purchase.

Traditional IRA Contributions:

1. Tax Treatment:
   • Traditional IRA contributions may be tax-deductible, providing an upfront tax benefit. However, taxes will be owed upon withdrawal in retirement.
2. Contribution Limits:
   • The annual contribution limit for Traditional IRA is the same as Roth IRA: $6,500 ($7,500 if you’re age 50 or older) in 2023, and $7,000 for those under age 50, and $8,000 for those age 50 or older in 2024.
3. Income Limits:
   • There are no income limits for making contributions to a Traditional IRA. However, the deductibility of contributions may be limited based on income and participation in an employer-sponsored retirement plan.
4. Age Limit:
   • Traditional IRAs do not have age limits for making contributions. You can contribute at any age as long as you have earned income.
5. Required Minimum Distributions (RMDs):
   • Traditional IRAs are subject to RMDs starting at age 73 (as of 2023). Withdrawals from a Traditional IRA are taxed at ordinary income rates.

Considerations:

The IRA contribution limits are the combined limit for both Traditional IRAs and Roth IRAs. That means, for example, if you’re under age 50 and you plan to contribute $3,000 to your traditional IRA for tax year 2023, your maximum possible contribution limit for your Roth IRA would be $3,500.

So, although you can contribute to both accounts, your combined contributions cannot exceed the IRA contribution limit—or you may face tax penalties.

You also can’t contribute more to a Roth IRA than your earned household income.

If your household income for the year is less than the contribution limit, then your personal IRA contribution may be limited by your earned household income.

If you are married and file jointly, your limit may be limited by your spouse’s income if you have no income yourself and are contributing to a spousal IRA.

• Your choice between Roth and Traditional IRA contributions depends on factors such as your current and expected future tax situation, financial goals, and personal preferences.
• A common strategy is to diversify tax treatments by contributing to both Roth and Traditional accounts if eligible.

We can help you decide how much and what IRA account you should contribute.

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You can contribute to both an Individual Retirement Account (IRA) and a 401(k) in the same year, subject to certain limits set by the Internal Revenue Service (IRS). Here are some key points to consider:

1. Contribution Limits:
   • As of 2023, the annual contribution limit for IRAs is $6,500 ($7,500 if you’re age 50 or older). The 401(k) plan limit is $22,500 ($30,000 if you’re 50 or older).
2. IRA Types:
   • There are different types of IRAs, including Traditional IRAs and Roth IRAs. The total contribution limit applies across all your IRAs, but you can contribute to both types if the combined contributions do not exceed the annual limit.
3. 401(k) Contributions:
   • Contributions to a 401(k) are separate from IRA contributions. You can contribute to both your employer-sponsored 401(k) plan and your IRA in the same year, taking advantage of potential tax benefits and diversification.
4. Tax Deductibility:
   • The tax treatment of your IRA contributions may vary depending on your income, whether you or your spouse have access to an employer-sponsored retirement plan, and the type of IRA (Traditional or Roth).
5. Employer Matching:
   • If your employer offers a 401(k) matching program, it’s generally advisable to contribute enough to your 401(k) to maximize any employer match before contributing to an IRA.
6. Phase-Out Limits:
   • Remember that there are income limits for certain tax advantages, such as the deductibility of Traditional IRA contributions and eligibility for Roth IRA contributions.
7. Spousal Contributions:
   • If you’re married and your spouse has little or no earned income, you may also consider making contributions to a Spousal IRA on behalf of your spouse.
8. Retirement Savings Strategy:
   • Your decision to contribute to both an IRA and a 401(k) should align with your overall retirement savings strategy, financial goals, and tax planning.

It’s essential to know the contribution limits, tax implications, and eligibility criteria associated with IRAs and 401(k)s. We can help you create a personalized retirement savings plan that optimizes the benefits of both types of accounts based on your individual circumstances.

We are here to help you every step of the way

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