Whether retirement is many years away or just around the corner, knowing available savings options is important for you to plan for your financial future. Individual retirement accounts are just one of the many ways to save, and they also offer tax benefits by letting earnings grow tax deferred. You should consider how an IRA may fit into their long-term financial plans.
From IRS Tax Tips, let’s look at a couple of the most common types of IRAs.
Traditional IRA
- You may be able to deduct their contributions to an IRA, if you qualify.
- There are annual limits to contributions depending on your age and the type of IRA.
- Generally, the money in a traditional IRA is not taxed until it’s withdrawn.
- If you withdraw money before age 59 ½, there may be a 10% additional tax, unless you qualify for an exception.
- Usually, you must start taking the minimum withdrawals from the IRA when they reach a certain age. Special distribution rules apply for IRA beneficiaries.
Roth IRA
Same rules as a traditional IRA, but there are differences:
- Contributions are not deductible and are made with after-tax funds.
- Qualified distributions are tax free.
- There is no required minimum distribution.
2026 contribution limits for traditional and Roth IRAs
For 2026, you can contribute a total of up to $7,500. Those who are 50 or older can contribute an additional $1,100, for a total of $8,600. The contribution limit applies to the combined amount contributed to traditional and Roth IRAs and can’t exceed your taxable compensation for the year.
As always, call the Crosslin tax team with any questions. We appreciate your business!