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Category: Taxes

Traditional vs. Roth IRAs

IRAs can be an important tool in your retirement savings belt, and whichever you choose to open could have a significant impact on how those accounts might grow.

 

IRAs, or Individual Retirement Accounts, are tax-advantaged accounts used to help save money for retirement. There are two different types of IRAs: traditional and Roth. Traditional IRAs, created in 1974, are owned by roughly 35.1 million U.S. households. Roth IRAs, created as part of the Taxpayer Relief Act in 1997, are owned by nearly 24.9 million households.[i]

 

Both kinds of IRAs share many similarities, and yet, each is quite different. Let’s take a closer look.

 

Up to certain limits, traditional IRAs allow individuals to make tax-deductible contributions into the retirement account. Distributions from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. For individuals covered by a retirement plan at work, the deduction for a traditional IRA in 2019 has been phased out for incomes between $103,000 and $123,000 for married couples filing jointly and between $64,000 and $74,000 for single filers.[ii],[iii]

 

Also, within certain limits, individuals can make contributions to a Roth IRA with after-tax dollars. To qualify for a tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Like a traditional IRA, contributions to a Roth IRA are limited based on income. For 2019, contributions to a Roth IRA are phased out between $193,000 and $203,000 for married couples filing jointly and between $122,000 and $137,000 for single filers.2,3

 

In addition to contribution and distribution rules, there are limits on how much can be contributed to either IRA. In fact, these limits apply to any combination of IRAs; that is, workers cannot put more than $6,000 per year into their Roth and traditional IRAs combined. So, if a worker contributed $3,500 in a given year into a traditional IRA, contributions to a Roth IRA would be limited to $2,500 in that same year.[i]

 

Individuals who reach age 50 or older by the end of the tax year can qualify for annual “catch-up” contributions of up to $1,000. So, for these IRA owners, the 2019 IRA contribution limit is $7,000.4

 

If you meet the income requirements, both traditional and Roth IRAs can play a part in your retirement plans. And once you’ve figured out which will work better for you, only one task remains: opening an account.

 

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable.  CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

 

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

[i] https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

[i] https://www.ici.org/pdf/per23-10.pdf

[ii] https://www.marketwatch.com/story/gearing-up-for-retirement-make-sure-you-understand-your-tax-obligations-2018-06-14

[iii] https://money.usnews.com/money/retirement/articles/new-401-k-and-ira-limits

IRS Provides Resources to Help Small Businesses with Taxes

The IRS offers small business leaders helpful information on taxes. Last year’s Tax Cuts and Jobs Act may have helped bolster revenue for many businesses, but understanding tax reform can be challenging.

Many small business owners may be able to take advantage of new 20% tax deductions on their qualified business income. To learn more, go to https://www.irs.gov/tax-reform.

The agency also provides detailed information on technical aspects of the tax law. The Tax Reform Guidance page provides a list of guides.

The drop-down articles provide some easy links to information and the Frequently Asked Questions answers common tax questions: https://www.irs.gov/newsroom/tax-reform-resources.

Publication 15, Circular E, Employer’s Tax Guide provides a more in-depth overview of employers’ tax responsibilities.

Tax Reform News has links to news articles and fact sheets about tax laws.

Other details may apply, and you can find more information on the IRS website.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

To learn more about CapSouth Wealth Management, click here.

Tip adapted from the IRS.gov[I]

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

[i] https://www.irs.gov/newsroom/irs-resources-can-help-small-businesses-better-understand-how-tax-reform-affects-their-bottom-line

Use the Paycheck Checkup if You Have Other Sources of Income

 

If you’re working for an employer and have other income sources outside your job, you should get a Paycheck Checkup. For more information, go to https://www.irs.gov/newsroom/time-for-a-paycheck-checkup.

Doing a paycheck checkup with the Withholding Calculator may help you avoid paying taxes at tax filing time. Go to https://apps.irs.gov/app/withholdingcalculator/.

Other income sources may come, for example, from the exchange of products and services in a sharing economy, interest, dividends, self-employment, capital gains, prizes, or awards.

Taxpayers may find the calculator especially important this year in the wake of changes to the tax code from the Tax Cuts and Jobs Act.

Here are some items to consider if you’re thinking about changing your withholdings to avoid a tax bill:

  • You should pay at least 90% of your income tax through withholding.
  • You can use Form W-4 to make adjustments to your income if the Withholding Calculator estimates you will have to pay taxes. Go to https://www.irs.gov/pub/irs-pdf/fw4.pdf.
  • If you’re generating income from other sources, you can still reduce or eliminate the possibility you’ll owe further taxes when you file your return by claiming fewer withholding allowances on your Form W-4.
  • You may also request your employer withhold an additional amount of money from your paycheck if you anticipate having to pay taxes at filing.
  • If you have to make additional tax payments through your paycheck, you may use Form 1040-ES, Estimated Tax for Individuals, to calculate an appropriate amount. Go to https://www.irs.gov/pub/irs-pdf/f1040es.pdf. Other details may apply, and you can find more information on the IRS website.
  • Tip adapted from the IRS.gov[i]
  • This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
  • For additional questions, go to https://www.irs.gov/payments.

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

 

[i] https://www.irs.gov/newsroom/employees-with-other-sources-of-income-should-do-a-paycheck-checkup

To learn more about CapSouth Wealth Management, click here.

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