Individual Retirement Arrangements IRAs News: Latest Updates and Changes

The world of Individual Retirement Arrangements (IRAs) is constantly evolving, and it's essential to stay informed about the latest updates and changes. The IRS announced that the 2022 contribution limit for traditional and Roth IRAs is $6,000, with an additional $1,000 allowed for those 50 or older.

As of 2022, you can contribute to a Roth IRA with earned income, and the income limits for deducting traditional IRA contributions have changed. The income limits for deducting traditional IRA contributions are $66,000 to $76,000 for single filers and $109,000 to $119,000 for joint filers.

The IRS also allows for catch-up contributions to IRAs, which can be a game-changer for those nearing retirement age. With a catch-up contribution, you can contribute an additional $1,000 to your IRA in 2022.

Related reading: Traditional Ira Tax Deferred

You can start a Roth IRA or a Traditional IRA by opening an account at most banks, credit unions, online brokers, or other financial services providers.

Fidelity, Charles Schwab, and E*Trade are all brokers that provide IRAs, making it easy to find a provider that suits your needs.

Opening an account is as easy as visiting a bank branch or website and filling in a form, which can be done in a matter of minutes.

Fidelity, Charles Schwab, and E*Trade are great options for those looking for a hassle-free experience in setting up their IRA.

Required Minimum Distributions (RMDs) are withdrawals that owners of traditional IRA and 401(k) accounts must take every year after they reach a certain age, which is now 73 as of January 1, 2023.

The amount a person must withdraw is based on the account size and the person's life expectancy, and the IRS has a worksheet to calculate the amount.

Failure to take the minimum triggers a severe tax penalty, which is 25% of the balance of the account, but this penalty can be reduced to 10% in many cases if the taxpayer takes corrective action early.

Explore further: Inherited Ira Early Withdrawal Penalty

Account owners should file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with their federal tax return for the year the full amount of the RMD was required but not taken.

An IRA trustee or plan administrator may calculate the RMD, but the account owner is ultimately responsible for ensuring the correct RMD is taken.

Related reading: Ira Rollover Rmd Rules

Inherited IRAs can be a bit tricky to navigate, but understanding the rules can help you make informed decisions. The SECURE Act introduced new RMD rules for beneficiaries of inherited retirement plan accounts and IRAs if the account owner died after 2019.

If you're a beneficiary of an inherited IRA, the distribution requirements depend on your relationship to the account owner and your specific characteristics. For example, being a spouse or a minor child can affect the distribution rules.

The account owner's date of death also plays a role in determining the distribution requirements. If the account owner passed away before the required beginning date for taking RMDs, the rules for inherited IRAs are different.

Intriguing read: 457 Plan Rmd Rules

Here are the key factors that affect the distribution requirements for inherited retirement plan accounts and IRAs:

Contribution limits for traditional IRAs are $7,000 for individuals under 50, and $8,000 for those 50 and over. Catch-up contributions are $1,000 for those 50 and over.

If you have a retirement plan at work, your traditional IRA contributions may not be fully deductible. The deductibility of your contributions depends on your modified adjusted gross income (MAGI) and filing status. For single filers, the full deduction is available if your MAGI is below $77,000 in 2024, or $79,000 in 2025.

The income phase-out range for married couples filing jointly is $123,000 to $143,000 in 2024, and $126,000 to $146,000 in 2025.

Here's a quick reference chart to see how much of your contribution may be deductible:

A Roth IRA is a great option for those looking to contribute after-tax dollars and enjoy tax-free growth and withdrawals. You can contribute to a Roth IRA as long as you have eligible earned income, no matter how old you are.

On a similar theme: Solo 401k Tax Credit

The contribution limits for a Roth IRA are the same as those for a traditional IRA, but there are income limitations on contributions. If you're single, your MAGI must be less than $146,000 in 2024 or $150,000 in 2025 to contribute up to the limit.

Here are the income limits for contributing to a Roth IRA for 2024 and 2025:

One of the benefits of a Roth IRA is that you don't have to take required minimum distributions (RMDs) in retirement, unlike traditional IRAs.

SEP IRAs offer flexibility for business owners to contribute to their employees' retirement plans.

Self-employed individuals can set up SEP IRAs, making them a great option for independent contractors, freelancers, and small-business owners.

For 2024, SEP IRA contributions are limited to 25% of compensation or $69,000, whichever is less.

In 2025, the contribution limit remains 25% of compensation, but increases to $70,000.

Business owners can deduct the contributions they make on behalf of their employees, providing a tax benefit.

However, employees cannot contribute to their own SEP IRA accounts, and the IRS taxes their withdrawals as income.

Take a look at this: In an Individual Retirement Account Ira Rollover Contributions Are

The contribution limits for IRAs and other retirement plans are an essential aspect of planning for your financial future. For 2024 and 2025, the maximum annual individual contribution is $7,000, with a catch-up contribution of $1,000 for those 50 and over.

If you don't have a retirement plan at work, your traditional IRA contributions are fully deductible. However, if you have a retirement plan at work, the deductibility of your traditional IRA contributions depends on your modified adjusted gross income (MAGI).

The income ranges that determine the deductibility of traditional IRA contributions are as follows: for single filers, the full deduction is available if your MAGI is below $77,000 in 2024 or $79,000 in 2025. For married couples filing jointly, the full deduction is available if your MAGI is below $123,000 in 2024 or $126,000 in 2025.

Here's a chart to help you determine how much of your contribution may be deductible:

For those with a SEP IRA, contributions are limited to 25% of compensation or $69,000 in 2024, whichever is less. In 2025, the limit is $70,000.

Lastly, the SIMPLE IRA has a contribution limit of $16,000 in 2024 (or $16,500 in 2025), with a maximum catch-up amount of $3,500.

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