Providing consultative services to the St. Louis Metropolitan area and throughout the nation.

featured blog

As we get close to Tax Day, we want to remind clients that it’s not too late to make a contribution to a Roth or Traditional IRA for 2019. Every spring we hear from clients asking questions about IRA accounts. IRS rules vary depending upon the type of account – Roth or Traditional. Here, we’ve outlined some of the most common questions and answers for you.

Q – What’s the deadline for making an IRA contribution?
A – For both Roth and Traditional IRAs, clients have until April 15th to make contributions for the prior tax year. So, to make a 2019 contribution, you need to do so before April 15, 2020.

Q – What is the difference between a Roth and Traditional IRA?
A – A Roth IRA is a tax-advantaged account that grows TAX-FREE, because the money invested in the account is money that has already been taxed. When you take a withdrawal, you will not be taxed on any qualified distributions received. A Traditional IRA is a tax-advantaged account that grows TAX-DEFERRED, because you can deduct these contributions from your taxable income in the year you make the contribution. When you take a withdrawal in retirement from a Traditional IRA, that amount is considered taxable income based on your tax rate at that time.

Q – How much can I contribute to my IRA?
A – The 2019 contribution limit for both Traditional and Roth IRA is $6,000. If you are over 50 years old, you can contribute an additional $1,000, for a total contribution of $7,000. The same contribution limits will apply in 2020.

Q – How can I avoid the 10% early withdrawal penalty?
A – The easiest way to avoid the early withdrawal penalty is to wait until you are age 59 ½ to take any money out of the account. However, the IRS does allow some exceptions to this rule.

  • First time home buyer – Up to $10,000
  • Qualified higher education expenses
  • Disability
  • Health Insurance premiums – only while you are unemployed.

Q – Which type of IRA should I set up – a Roth or Traditional?
A – That depends on the client. Generally, the younger you are, the lower the tax bracket you are in, so a Roth IRA might make more sense. It has more time to grow tax-free before distributions are taken. If you are in a higher tax bracket, a traditional IRA might make more sense, if you qualify.

Q – Can I still contribute to an IRA if I’m in a retirement plan at work?
A – Yes, you can contribute to a Roth or Traditional IRA even if you participate in a retirement plan at work. However, there are income limits. If you are married filing jointly and have modified adjusted gross income (MAGI) of $103,000 or less, you can contribute the maximum amount to either a Roth or tax-deductible IRA for 2019. If you exceed this household income limit, talk to your financial advisor about a non-deductible IRA and a Roth conversion as an option.

Q – If my spouse doesn’t have earned income, can she still make a traditional IRA contribution?
A – If you file a joint tax return, a nonworking spouse can contribute to a deductible IRA if the working spouse has income that exceeds the total combined contribution amounts into the IRAs.

If you are covered by a retirement plan at work, there are income limits if your spouse wants to make a contribution. For married couples filing jointly, the MAGI limit is $193,000.

If you have more questions, we are here to help. Call Hovis & Associates to schedule an appointment at (800) 411-0737.

#WeAreHovis

#PlanwithHovis