IRA FAQs: Find Your Answers

Whether retirement is around the corner or many years away, you likely have some questions about how to prepare yourself financially. Today, we will tackle some of the most common questions.

What is an IRA?

IRA stands for Individual Retirement Account. The purpose of it is to provide a tax advantaged way for people save for retirement on their own. The two types of IRAs are Traditional and Roth.

Traditional: With a Traditional IRA, contributions may be tax-deductible depending on your modified adjusted gross income, but will later be taxed upon withdrawal.

Roth: With a Roth IRA, you pay taxes on your contributions in the year they are made, but will not pay taxes at withdrawal.

How much can I contribute?

You may contribute up to 100 percent of your income but no more than $6,000 as of 2020, or $7,000 if you’re over the age of 50.

Who can have an IRA?

Any person who has earned income can have an IRA. Even if you already have a 401k through your employer, you can still contribute to your own. However, contributions to a Traditional IRA are only tax-deductible if your modified adjusted gross income is under a certain threshold which varies based on filing status.

Can I have both a Traditional IRA and a Roth IRA?

Yes, you can have both. However, you are still subject to the same overall contribution limit. It would need to be divided up over the two accounts.

Can I move my assets from my employer-sponsored plan to my IRA?

Yes, you can move your assets in this way. Most of the time, you can only do this when you are no longer employed by the company. However, you cannot move your IRA assets into your employer’s plan.

Is there a penalty for withdrawing early?

If you choose to withdraw before the age of 59 ½, your funds will be subject to a 10 percent penalty. However, there are some exceptions to this that you can learn more about here. In addition, you are able to withdraw your own contributions from a Roth IRA without penalty. Just be careful to keep good records of how much of your balance consists of your own contributions versus what it has earned.

Your retirement is too important to not have all of your questions and concerns answered. Meet with us to learn more about your retirement options and how to get your finances set up for success. Also check out the Retirement 101 module in the FMBT Financial Education Center. It takes about 5 minutes and can help you determine how much money you will need to save for retirement.

Lastly, keep in mind that every situation is unique and we cannot provide tax advice. Please consult a tax advisor to assess your individual circumstances.