Do you have an IRA for retirement? An IRA, or individual retirement arrangement, allows you to save money for retirement. It also provides certain tax advantages. The Internal Revenue Service (IRS) offers guidelines to help you understand how IRAs work. Here are some frequently asked questions about IRAs and taxes.
Q: Is there only one type of IRA?
- A:No, there are a few different IRAs. The most common are Traditional IRAs and Roth IRAs.
Q: What's a Traditional IRA?
- A:A retirement account in which your contributions can be partially or fully deductible. Usually the amount in the account isn't taxed until it's distributed to you. This includes any earnings and gains from the account.
Q: What's a Roth IRA?
- A:A retirement account in which your contributions can't be deducted. However, any qualified distributions to you aren't taxed.
Q: Can I contribute to an IRA at any age?
- A:You can contribute to a Traditional IRA up to age 70 1/2. You can contribute to a Roth IRA even after this age.
Q: How much money can I contribute to an IRA every year?
- A:The amount of money can be affected by limits and rules from the IRS. Generally, you can contribute the lesser of $5,000 or your taxable compensation.
Q: How do I report nondeductible contributions to an IRA?
- A:Use Form 8606, Nondeductible IRAs, to report any nondeductible contributions to a Traditional IRA. There's no tax form used to report a contribution to a Roth IRA.
Q: Can I move my money from one retirement plan to an IRA?
- A:You usually can move, or rollover, money from one retirement plan to an IRA. The rollover must happen by the 60th day of the distribution.
Q: Can I convert a Traditional IRA into a Roth IRA?
- A:Yes, the conversion is treated as a rollover.
Q: What happens if I withdrawal money from an IRA before I reach the age of 59 1/2?
- A:You may have to pay a 10% additional tax on early distributions.
Q: Do I ever have to withdraw money from an IRA or can I just leave it in there?
- A:You must withdraw minimum amounts of money by April 1st of the year after you turn the age of 70 1/2 for Traditional IRAs. This minimum distribution requirement doesn't apply to Roth IRAs as long as you're alive.
Q: Do I report my nondeductible Roth IRA contributions on Form 8606
Q: How long do I have to roll over a retirement distribution to an IRA account
Q: If we cash in an IRA account while in our 30s what forms do we need to fill out
Q: If we cash in an IRA account while in our 30s when do we pay the taxes and penalties