An Individual Retirement Account (IRA) is a type of investment account that individuals can use to save for retirement. It offers tax advantages, such as tax-free growth or tax deductions on contributions, depending on the type of IRA. Contributions to an IRA are typically made with pre-tax income, and the funds can be invested in a variety of assets, such as stocks, bonds, or mutual funds. Withdrawals from an IRA are generally subject to taxes and penalties if taken before the age of 59 ½, but there are exceptions for certain circumstances, such as first-time home purchases or qualified education expenses. Overall, an IRA provides individuals with a way to save and invest for their retirement while enjoying potential tax benefits.
No, you must have earned income from employment or self-employment to contribute to an IRA.
For the tax year 2021, the maximum contribution limit for an IRA is $6,000 for individuals under 50 years old and $7,000 for individuals 50 years old or older.
Yes, you can contribute to both types of IRAs in the same year, but the total combined contribution cannot exceed the annual limit.
Yes, there are income limits for contributing to a Roth IRA. For the tax year 2021, the income limit for single filers is $140,000, and for married couples filing jointly, it is $208,000.
Generally, if you withdraw money from your IRA before reaching the age of 59½, you may be subject to a 10% early withdrawal penalty, in addition to paying income taxes on the amount withdrawn.
Yes, there are certain exceptions to the early withdrawal penalty, such as using the funds for qualified higher education expenses, first-time homebuyer expenses, or in case of disability or death.
Yes, you can roll over funds from one IRA to another within 60 days without incurring taxes or penalties. However, it is recommended to use a direct trustee-to-trustee transfer to avoid any potential issues.
Yes, you can contribute to an IRA even if you have a 401(k) plan through your employer. However, depending on your income and filing status, your ability to deduct your traditional IRA contributions may be limited.
Yes, you can convert a traditional IRA to a Roth IRA. However, you will have to pay income taxes on the amount converted in the year of the conversion.
Yes, once you reach the age of 72 (or 70½ if you turned 70½ before January 1, 2020), you are generally required to start taking RMDs from your traditional IRA. Roth IRAs do not have RMDs during the account owner’s lifetime.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 13th April 2024.
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