A Retirement Account can be one of the best tools someone can use to begin preparing for retirement. There are so many options out there and we want to help you find the right one.
- Retirement Accounts For Individuals
- What is an IRA (Individual Retirement Account)?
- What is a Traditional IRA (Individual Retirement Account)?
- How Traditional IRAs Work?
- Are Traditional IRA Contributions Tax Deductible
- 2023 Traditional IRA Contribution Limits
- What is a Roth IRA (Roth Individual Retirement Account)?
- How Do ROTH IRAs Work?
- Are ROTH IRA Contributions Tax Deductible?
- What is a ROTH Conversion, Backdoor ROTH?
- Are You Ready to Start Your Own Retirement Account?
Retirement Accounts For Individuals
With there being so many different kinds of retirement accounts, it is important to review all of your options.
What is an IRA (Individual Retirement Account)?
An IRA is short for Individual Retirement Account. These accounts are specifically designed to be used by anyone who has an “earned income”. An earned income is simply income that is received from your line of work that is appropriately recorded with the IRS.
Assuming you qualify, this is another retirement account you may contribute to along side your retirement account at work.
IRAs can invest in a large range of investment products. This can include stocks, bonds, mutual funds, ETFs, and much more.
Two of the most popular IRAs are Traditional IRAs and ROTH IRAs. Most people can set up either account, but it is best to review and see which may be best for your personal situation.
What is a Traditional IRA (Individual Retirement Account)?
Traditional IRAs were one of the first retirement accounts to be designed outside of the 401(k). They are generally considered to be a long term strategy to begin saving and investing for retirement. This can be a good option for someone who does not have a retirement account available at their work.
How Traditional IRAs Work?
You can contribute to a Traditional IRA on a pre-tax basis. This means that you can contribute earned income dollars into a traditional IRA without having paid taxes on it yet. Once you hit 59 1/2 years old, you are allowed to pull from the account for your retirement years.
This can potentially be seen as beneficial as you can technically contribute more money to the account.
Are Traditional IRA Contributions Tax Deductible
In most cases, Traditional IRAs are tax deductible. As an example, if you were to put $5,000 into an IRA, your taxable income for the year decreases by $5,000. With that being said, if you make too much you may or may not qualify for the tax deduction.
However, not everyone can take the deduction. Your ability to do so is base on your MAGI or Modified Adjusted Gross Income. Here is how it is broken down.
2023 Traditional IRA Income Limits: Link to source here.
| Filing Status | MAGI | Deduction? |
| Single, Head of Household | – $73,000 or Less – $73,000 but less than – $83,000 $83,000 or more | – A Full Deduction up to contribution limit – A partial Deduction – No Deduction |
| Married filing jointly or qualifying widow(er) covered by plan at work | – $116,000 or less – $116,000 but less than $136,000 – $136,000 or more | – A full deduction up to the amount of your contribution limit – A partial deduction – No deduction |
| Married filing separately covered by plan at work; married filing separately with spouse who is covered by plan at work | – $10,000 or less – $10,000 or more | – A partial deduction – No deduction |
| Single, head of household, qualifying widow(er); Married filing jointly or separately NOT covered by a plan at work but your spouse is | – Any amount | – A full deduction up to the contribution limit |
| Married filing jointly or separately NOT covered but with a spouse who is covered by a plan at work | – $218,000 or less – $218,000 but less than $228,000 – $228,000 or more | – A full deduction up to the contribution limit – A partial deduction – No deduction |
2023 Traditional IRA Contribution Limits
Currently Traditional IRAs allow you to contribute $6,500 or $7,500 if you are over 50 years of age. Traditional IRAs have many benefits, but you are limited on how much you can contribute to a Traditional IRA each year.
>>Learn more about Traditional IRAs here.
What is a Roth IRA (Roth Individual Retirement Account)?
Created in 1997, ROTH IRAs are a relatively newer retirement account option. They are generally considered to be a long term strategy to begin saving and investing for retirement. This can be a good option for someone who does not have a retirement account available at their work.
How Do ROTH IRAs Work?
You can contribute to a ROTH using after tax earned income. The benefit of this is that the money inside of a ROTH can grow at a tax free rate! Just like a traditional IRA, once you hit 59 1/2 years old, you are allowed to pull from the account for your retirement years.
These tend to be very popular as the ability to not pay taxes in retirement can be a huge benefit.
Are ROTH IRA Contributions Tax Deductible?
No, unlike traditional IRAs, ROTH IRAs are not tax deductible. In addition, not everyone can contribute to a ROTH. Check the chart below to see if you qualify.
2023 ROTH IRA Income Limits: Link to source.
| Filing Status | MAGI | You can Contribute… |
| Married filing jointly or qualifying widow(er) | – Less than $218,000 – More than $218,000 but less than -$228,000 $228,000 or more | – Up to the contribution limit – A partial amount – Zero |
| Single, head of household, or married filing separately and you didn’t live with your spouse at any time during the year | – Less than $138,000 – More than $138,000 but less than $153,000 – $153,000 or more | – Up to the contribution limit – A partial amount – Zero |
| Married filing separately and you lived with your spouse at any time during the year | – Less than $10,000 – $10,000 or more | – A partial amount – Zero |
>>Learn more about Roth IRAs here or here.
2023 ROTH IRA Contribution Limits
Currently Roth IRAs allow you to contribute $6,500 or $7,500 if you are over 50 years of age. Roth IRAs have many benefits, but you are limited on how much you can contribute to one.
What is a ROTH Conversion, Backdoor ROTH?
Do you find yourself in the position where you make too much money to contribute to a ROTH IRA? You can still contribute to one buy initiating a ROTH Conversion, or Backdoor ROTH.
This is an option to get your assets into a ROTH IRA. However, it is a conversation to have with your tax professional. While ROTH IRAs can seem inciting, you will have to pay taxes upfront. The tax rate could be very large if you are in this position.
Which Traditional IRA is Best?
Picking the right IRA is simply based on your goals and your income. As an example, a Traditional IRA may be best if you want a tax deduction. (Assuming you qualify). On the other hand a ROTH may be best if you are looking for tax free income in retirement. (Assuming you qualify).
Are You Ready to Start Your Own Retirement Account?
IntelliVest Wealth Management works with clients in Spartanburg, South Carolina as well as the Upstate. If you are interested in getting started on your retirement journey please feel free to give us a call at (864) 598-0000 or contact us below!
Click here to learn more about small business retirement accounts.
Disclosures:
IntelliVest Wealth Management is a Registered Investment Advisor Headquartered in South Carolina. This is not financial advice and should be reviewed for educational purposes only. If you have questions about your own financial goals please reach out to us or your financial professional. Please click here for more disclosure material.