considerations

By Douglas J. Sinclair              June 11, 2022

An Individual Retirement Account (IRA) is a type of personal savings account, that you setup with a financial institution, often with the aid of a financial adviser. A Traditional IRA comes in two types, Deductible and Nondeductible, and each type allows the owner to plan for their future while also benefiting from some tax saving benefits. The Traditional IRA is also one of the first and one of the most popular types of retirement account because of its status as a tax deferred savings account.

This means that you normally do not pay income taxes on your contributions, and only pay taxes on your money later when you make withdrawals in retirement. Due to contributions, you make from eligible income generally being tax deferred, any interest payments, capital gains, and dividends you receive are able to compound while being unfettered by income tax as your account continues to grow.

Your income and whether you or your spouse are covered by an employer retirement account typically determines whether you are able to take advantage of a full or partial tax deductible.

Example:

Janice is single 29 years old and has just recently received a raise bringing her annual income up to $47,000. Based upon her marital status and lack of employer retirement plan if she is able to keep her income beneath the $66,000 threshold, she knows she will be able to claim a full deduction for her maximum contribution limit of $6,000.

In June of 2022 Janice marries David, and David has an income that is a greater than hers. Janice will need to make an appointment with her tax advisor to determine whether any or all of her contributions will be able to qualify as being tax deductible.

Written by Douglas J. Sinclair

Rock Hill SC and Charlotte NC

June 11, 2022

considerations, IRA, roth

by Donn J. Sinclair, MBA   June 24, 2022

Which is best for you ?  Maybe both should be part of your 2022 retirement savings plans.  In 2022 you may be eligible to contribute up to $6,000 for those under age 50.  Those age 50 and older may be eligible to contribute up to $7,000.  You may want to split your maximum contribution between your Traditional IRA and your Roth IRA !  

With Traditional IRAs and other pre-tax retirement plans the contributions may be tax deductible in 2022.  Your earnings grow tax-deferred until you withdraw them.  Normally it should be best to withdraw Traditional IRA funds in retirement when you normally have less income, and therefore pay less in taxes.  

Roth IRA and other post-tax retirement plans you pay the taxes on the contributions, and your earnings should grow tax-exempt or tax-free.  Those post-tax accounts that feature tax-exempt withdrawals after age 59.5 are excellent complements to your pre-tax Traditional IRA savings.  

In retirement many people find they have unplanned needs for extra cash.  For example: this could be the need for a new heating and cooling system; or something much more fun like an extra vacation !  Taking that extra cash from a pre-tax IRA should increase your current year income and current year income tax obligation.  A double whammy could hit if more of your Social Security income is now taxable !  

Conversely, it may be more desirable to with draw that extra cash from a Roth IRA or other post-tax retirement plan.  Then you should not increase your current year income and your current year tax obligation.  Voila  – no double whammy from making more of your Social Security taxable.

Therefore the answer may be that Traditional IRAs and pre-tax retirement accounts are best in conjunction with Roth IRAs and other post-tax retirement accounts.  It is important to balance your current year tax liability with your future retirement income needs.  

Updated by Donn J. Sinclair, MBA

@Sinclair Financial Solutions

in Charlotte NC and Rock Hill SC

June 24, 2022 (803)329-0609

DJS: More information is available at IRS.gov.

See Publication 590-A and Publication 590-B.

Taxable Compensation Reminder

The IRS describes taxable compensation in general terms as what you earn from working.  This specifically includes wages, salaries, tips, professional fees, bonuses, and other amounts you receive for personal services rendered.  The IRS considers as taxable compensation all amounts properly shown on your W-2 in Box 1, provided that amount is not reduced by any amount entered in Box 11.  For IRA purposes, scholarship and fellowship payments are taxable compensation only if shown on Form W-2 in Box 1.  Consult your tax advisor and/or www.IRS.gov for more information.

Donn J. Sinclair, Winthrop MBA

Office (803)329-0609

Fax Line (803)327-4352

@Sinclair Financial Solutions is independently owned and operated.  Donn J. Sinclair, MBA is insurance licensed in NC & SC (NIPR NPN#1722815).  Investment Advisory Services offered through Prosperity Wealth Management, Inc., 2333 San Ramon Valley Boulevard, Suite #200 – San Ramon, CA 94583.  Securities offered through Fortune Financial Services, Inc., 3582 Brodhead Road, Suite #202 – Monaca, PA 15061; branch office of record located at 948 Myrtle Drive Rock Hill, SC 29730, Member FINRA/SIPC.  Sinclair Financial Solutions, Prosperity Wealth Management, and Fortune Financial Services, Inc are separate entities.   SC Real Estate License #76530, and NRDS #554027312.  Month 00, 0000>/p>

considerations, IRA, roth