Podcast
Questions and Answers
What age must an IRA owner reach to qualify for a Normal distribution from a Traditional IRA?
What age must an IRA owner reach to qualify for a Normal distribution from a Traditional IRA?
What is required for a Roth IRA distribution to be considered Normal?
What is required for a Roth IRA distribution to be considered Normal?
Which statement accurately describes a Transfer distribution?
Which statement accurately describes a Transfer distribution?
What is the purpose of withholding 10% for federal income taxes on IRA distributions?
What is the purpose of withholding 10% for federal income taxes on IRA distributions?
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What must an IRA owner do to avoid withholding federal income tax on their distributions?
What must an IRA owner do to avoid withholding federal income tax on their distributions?
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What does RMD stand for in the context of IRAs?
What does RMD stand for in the context of IRAs?
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What is the maximum contribution limit for a Traditional IRA for a person under age 50?
What is the maximum contribution limit for a Traditional IRA for a person under age 50?
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At what age must an IRA owner begin taking Required Minimum Distributions (RMDs)?
At what age must an IRA owner begin taking Required Minimum Distributions (RMDs)?
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Which IRA type allows tax-free withdrawals in retirement, provided certain conditions are met?
Which IRA type allows tax-free withdrawals in retirement, provided certain conditions are met?
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What is an additional contribution a person aged 51 or older can make to their IRA?
What is an additional contribution a person aged 51 or older can make to their IRA?
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Which type of contribution involves a direct transfer between IRA accounts without being taxable?
Which type of contribution involves a direct transfer between IRA accounts without being taxable?
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How does making a contribution to a Roth IRA affect the maximum contribution limit of a Traditional IRA?
How does making a contribution to a Roth IRA affect the maximum contribution limit of a Traditional IRA?
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What does RMD stand for in the context of IRAs?
What does RMD stand for in the context of IRAs?
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What is a key tax advantage of a Roth IRA compared to a Traditional IRA?
What is a key tax advantage of a Roth IRA compared to a Traditional IRA?
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What is one major rule that applies to Traditional IRAs that does not apply to Roth IRAs?
What is one major rule that applies to Traditional IRAs that does not apply to Roth IRAs?
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Which of the following contributions can improve tax deductions in a Traditional IRA?
Which of the following contributions can improve tax deductions in a Traditional IRA?
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Which scenarios make a member ineligible to contribute to a Roth IRA?
Which scenarios make a member ineligible to contribute to a Roth IRA?
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What types of income are considered compensation for IRA contribution eligibility?
What types of income are considered compensation for IRA contribution eligibility?
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Study Notes
IRA Contribution Limits
- Individuals can contribute up to 7,000or7,000 or 7,000or8,000 for those 50 or older in 2024. This applies to Traditional or Roth IRAs.
- Contributions can be made up until the tax filing deadline of the prior year, which means you can contribute to a 2023 IRA in 2024 before April 15.
Traditional vs. Roth IRA
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Traditional IRA
- You can deduct contributions from your taxes
- Earnings grow tax-deferred
- You pay taxes on withdrawals in retirement
- Required Minimum Distributions (RMDs) begin at age 73
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Roth IRA
- You don't get a tax deduction on contributions
- Earnings grow tax-free
- You pay no taxes on withdrawals in retirement
- No RMDs - The owner can choose to never take out the money unless needed.
- Contributions are limited by income
Types of IRA Contributions - Detailed
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Regular Contribution
- Made with earned income or other eligible compensation
- Can be made up until the tax filing deadline of the previous year
- Individuals 50 or older can make a catch-up contribution of $1,000 in 2024.
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Transfer
- Direct movement of funds from one IRA to another of the same type
- This is not considered a taxable event and is not reported to the IRS
- Can be done between Traditional IRAs or between Roth IRAs
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Rollover
- This is a movement of money from an IRA to the IRA owner, who then typically re-contributes the money into another IRA.
- Indirect Rollover - The IRA owner has access to the money before re-contributing
- Direct Rollover - The money is moved directly from one IRA to another. This often occurs from an eligible employer-sponsored retirement plan to an IRA
IRA Eligibility
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Traditional IRA
- You must be earning compensation or filing a joint tax return with a spouse who is earning compensation
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Roth IRA
- You must have earned income or be filing a joint tax return with a spouse earning compensation
- You must meet Modified Adjusted Gross Income (MAGI) requirements
Compensation
- Generally Defined - Money earned from working which includes wages, salaries, commissions, self-employment income, alimony, and non-taxable combat pay
- Not Defined - Interest and dividends, earnings from property, pension or annuity income, deferred compensation, or partnership income
Required Minimum Distributions (RMDs)
- RMDs must be taken in the year you turn 73 with Traditional IRAs
- The RMD is figured by dividing the previous year-end balance by a life expectancy factor
- You can choose to take out more than the RMD each year
- The RMD age was raised to 73 in 2023
IRA Distributions
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Normal Distribution
- In a Traditional IRA, this is a withdrawal made at age 59 1/2 or older. This includes RMDs.
- In a Roth IRA, the owner satisfies the five-year rule and is either at least 59 1/2 or disabled.
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Transfer Distribution
- Money moves from one IRA to another directly, without the owner ever having possession of the funds. The check is payable to the receiving institution.
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Rollover Distribution
- Funds are distributed from one IRA to the IRA owner. This is a "indirect rollover" as typically the individual will re-contribute the money into a new IRA.
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Description
Test your knowledge on the contribution limits for Traditional and Roth IRAs in 2024. This quiz covers key differences between IRA types, including tax implications and distribution rules. Perfect for anyone looking to understand retirement savings better.
