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IRS Tax Tips July 14, 2022
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Issue Number: Tax Tip 2022-107
*IRAs are one tool in the retirement planning toolbox*
There are many ways people plan for retirement. Individual Retirement Arrangements [ [link removed] ], or IRAs, are a common one. IRAs provide tax incentives for people to make investments that can provide financial security when they retire. These accounts can be with a bank or other financial institution, a life insurance company, mutual fund, or stockbroker.
*Here are some things to know about a traditional IRA*.
A traditional IRA [ [link removed] ] is a tax-advantaged personal savings plan where contributions may be tax deductible.
* Generally, the money in a traditional IRA isn?t taxed until it?s withdrawn.
* There are annual limits to contributions [ [link removed] ] depending on the person?s age and the type of IRA.
* When planning when to withdraw money from an IRA, taxpayers should know that:?
* They may face a 10% penalty and a tax bill if they withdraw money before age 59?, unless they qualify for an exception [ [link removed] ].
* Usually, they must start taking withdrawals [ [link removed] ] from their IRA when they reach age 72. For tax years 2019 and earlier, that age was 70?.
* Special distribution rules apply for IRA beneficiaries [ [link removed] ].
*Roth IRAs are like traditional IRAs, but there are some important differences*.
A Roth IRA is another tax-advantaged personal savings plan with many of the same rules as a traditional IRA but there are exceptions [ [link removed] ]:
* A taxpayer can?t deduct contributions to a Roth IRA. [ [link removed] ]
* Qualified distributions [ [link removed] ] are tax-free.
* Roth IRAs don?t require withdrawals until after the death of the owner.
*Here are a few other types of IRAs*:
* *Savings Incentive Match Plan for Employees*. A SIMPLE IRA [ [link removed] ] allows employees and employers to contribute to traditional IRAs set up for employees. It is suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.
* *Simplified Employee Pension*. A SEP IRA [ [link removed] ] is set up by an employer. The employer makes contributions directly to an IRA set up for each employee.
* *Rollover IRA*. This is when the IRA owner receives a payment from their retirement plan and deposits it into a different IRA [ [link removed] ] within 60 days.
*More information*:
Publication 590-A, Contributions to Individual Retirement Arrangements [ [link removed] ]
Publication 590-B, Distributions from Individual Retirement Arrangements [ [link removed] ]
Topic No. 557, Additional Tax on Early Distributions from Traditional and Roth IRAs [ [link removed] ]
Topic No. 413, Rollovers from Retirement Plans [ [link removed] ]
Topic No. 451, Individual Retirement Arrangements [ [link removed] ]
Share this tip on social media -- #IRSTaxTip: IRAs are one tool in the retirement planning toolbox [link removed]
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