The Diversified Blog

A wealth management blog dedicated to creating a long lasting sustainable retirement.

Marriage and Roth IRA Contributions

Here is a nice article by Kimberly Lankford of Kiplinger:

 

By Kimberly Lankford, Contributing Editor   

 

August 25, 2017

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What Is a Custodial IRA?

A custodial IRA is an IRA managed by a parent or guardian for the benefit of a minor child, as long as that child works and has earned income. As with other types of IRAs, the maximum annual contribution for 2015 is $5,500 (indexed annually for inflation) and the underlying investments can be determined by the person managing the account, in this case the parent or guardian, prior to the child reaching majority age. A custodial IRA can be either a traditional IRA or a Roth IRA. 

 

Although an adult typically oversees the account, the funds belong to the minor child and must be turned over at the age of majority, which varies depending on the state. IRAs present tax benefits, and opening an account when a child is relatively young may enhance these advantages. As long as the money remains invested, contributions and investment earnings may potentially compound free of taxation. The longer the time period when contributions are made and the money can compound, the greater is the opportunity to build wealth. Required minimum distributions (RMDs) from traditional IRAs, which are taxed as ordinary income, are mandatory after age 70½. For Roth IRAs, RMDs are not required, and the assets could potentially compound for a lifetime. Restrictions, penalties, and taxes may apply. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

 

Withdrawals

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How Do I Know If My IRA Contributions Are Tax Deductible?

Contributions to a traditional IRA are tax deductible if you don't already participate in an employer-sponsored retirement plan. For 2015, the maximum you can contribute to an IRA is $5,500. If you are age 50 or over, you can make an additional "catch-up contribution" of $1,000.

 

If you do participate in an employer-sponsored plan, your contributions still can be fully or partially deductible, up to certain income thresholds. For 2015, those limits are between $61,000 and $71,000 for single filers and $98,000 and $118,000 for married couples filing joint returns.

 

If you are ineligible to make deductible contributions to a traditional IRA, you may want to investigate a Roth IRA. Contributions to a Roth IRA are made with after-tax dollars and are not tax deductible, but distributions are tax free. Be aware that there are income thresholds to contribute to a Roth. For 2015, those limits are between $116,000 and $131,000 for single filers and $183,000 and $193,000 for married couples filing joint returns.

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Tax Day for 2012 is over – but the work starts now for 2013!

With the April 15th deadline behind us, many of us want to forget about Tax Day until next April. This would be a disservice to you. Take the time now to do some planning for the 2013 tax year to capture any potential benefits – or miss out on potential harms to your tax situation.

Of course, if you took advantage of an extension for your 2012 returns, the sooner you file your return, the better so you can start planning for your 2013 tax year.

Here are some things you should be thinking about now – before next April:

1)      Make Your Estimated Tax Payments.
If you are self-employed, have a job that does not withhold tax from your paycheck, or have income from other sources (such as certain investments) then you likely have a need to make estimated tax payments. If you anticipate a shortfall in your tax withholding for the year, you need to be making estimated tax payments. One quick check to avoid the underpayment penalty is to ensure by the end of 2013, the smaller of: 90% of the tax you owe for the current year or 100% of the tax shown on the return for last year (2012) is being withheld. If you don’t anticipate this amount to be withheld, then you probably need to make estimated tax payments.  Check with your accountant to see if they recommended making estimated payments for the 2013 tax year. Estimated tax payments are due quarterly: April 15, June 15, September 15, and January 15.

2)     Fund Your IRA or Roth IRA Account.
Consider making current year (2013) contributions to your retirement accounts now instead of waiting until the filing deadline to contribute. The contribution limits for 2013 are $5,500 to an IRA or Roth IRA and $6,500 if you are over 50. There are certain income limits for contributions that you need to be aware of. Consult with your accountant or other financial professional to see what if an IRA or Roth IRA contribution is appropriate for your 2013 tax situation.

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Still Time to contribute to an IRA or Roth IRA for 2012…If You Qualify

Can You Make an IRA Contribution?

As long as you have income, you can contribute to an IRA; even if you are participating in an employer retirement plan. The only question is whether or not your IRA contribution is deductible from your taxes.

Even if your contribution is not deductible, the money in the IRA will still grow tax free until you take it out (after age 59½) at which point you only pay tax on the gains. If your spouse is not working, you can contribute to an IRA on their behalf as well, provided you have earned income.

Check with your accountant on the deductibility of an IRA contribution for your situation.

Can You Make a Roth IRA Contribution?

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