If you haven’t considered an Individual Retirement Account (IRA) lately, it may be time to look again. With an IRA, the income from interest, dividends and capital gains can compound each year free of taxes, even if your income makes you ineligible to deduct the actual IRA contribution. This alone makes an IRA worth considering. An IRA can be an important ingredient in a solid financial plan and an ideal supplement to an employer-sponsored retirement plan.
Traditional or Roth IRA?
There are two main types of IRAs—Traditional and Roth.
Contributions may or may not be tax-deductible depending on your income level and whether you (and your spouse if you are married) are covered by an employer-sponsored retirement plan. But anyone under age 70½ with earned income can make nondeductible contributions. Your savings in a traditional IRA benefit from tax-deferred growth until withdrawn.
With a Roth IRA, you make contributions with aftertax dollars. Contributions can always be withdrawn tax-free. Your savings grow tax-deferred, and, if certain requirements are met, your earnings may also be withdrawn tax-free. Any distribution of earnings taken are tax-free if the Roth IRA is held for at least five years and the individual account holder is age 59½ or older; making a first-time home purchase (lifetime limit of $10,000 per taxpayer); is disabled or dies. If a designated beneficiary inherits the account, any remaining assets in the Roth IRA can be distributed tax-free over his or her lifetime.
Can I make deductible contributions to a traditional IRA?
Deductibility of traditional IRA contributions is based on your modified adjusted gross income (MAGI):
2016 and 2017 contribution limits for Traditional and Roth IRAs:
An individual’s total annual contribution cannot exceed the maximum limit, no matter how many traditional and Roth IRAs he or she has.
Under age 50 - $5,500
Age 50 and older - $6,500
Married couple filing jointly—only one spouse participates in employer-sponsored plan
If you are covered by an employer-sponsored retirement plan, but your spouse is not, then the deductibility of your spouse’s traditional IRA contribution is based on different MAGI limits.
MAGI limits for spouse who is not a participant in an employer-sponsored plan
Anyone with earned income not exceeding the allowable limits may contribute. Eligibility to contribute is phased out as follows:
Am I eligible for a Roth IRA?
Anyone with earned income not exceeding the allowable limits may contribute as follows:
Roth IRA conversion
Everyone, regardless of income level, can convert a traditional IRA to a Roth IRA. (The $100,000 adjusted gross income (AGI) limit was eliminated beginning in 2010.) Converted amounts are not subject to the 10% penalty tax, but they are included as income. Consult with your tax advisor for details. For more information on ROTH IRA conversions please see the factsheet 'To convert or not to convert.'
Let's have a conversation.
It's important to feel confident when it comes to your retirement. Let's review your goals to see if an IRA is right for you.
Your life today is much bigger than your investments. And achieving your life's goals is being challenged in a new way. By the realities of a longer retirement. The demands of caring for aging parents. The threat of online identity theft. And the financial burden of long-term healthcare. Your UBS Financial Advisor can help you understand how all the moving parts of your life can fit together to help you pursue what's important - including the role that an IRA can play in your overall financial plan. It's what we call: Advice. Beyond investing.