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Roth & Traditional IRA Guidebook

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Roth & Traditional IRA Guidebook Roth & Traditional IRA Guidebook 2021 Individual Retirement Accounts At-a-Glance Roth IRA Traditional IRA Eligibility Members of Utah Retirement Systems are eligible to participate. Members of Utah Retirement Systems are eligible to participate. You may contribute as long as you have earned income. You may contribute as long as you have earned income. Maximum Annual Contribution limits are the same for both the Roth IRA and Traditional IRA. Contributions to all IRAs must be combined toward Contribution the total limit. For example, if you contribute $1,000 to a Traditional IRA at your bank and another $1,000 to your URS (This is the total Traditional IRA (total of $2,000), you may only contribute up to $4,000 to your Roth IRA (for a total of $6,000 in 2021). amount for all IRAs The maximum annual contribution limit is $6,000 for 2021. you may have.) IRA For those ages 50 and older an additional “catch-up” contribution of $1,000 may also be made, bringing the total to $7,000 in 2021. Contributions » A single income tax filer with income up to: No income limits. are subject to $125,000 — qualifies for a full contribution Roth & Traditional income limits. $125,000 to $140,000 — qualifies for a partial contribution Individual Retirement Accounts If you are: over $140,000 — cannot contribute See Page 3 for deductibility income limits for active participants. » A married/joint income tax filer, with income up to $198,000 — qualifies for a full contribution $198,000 to $208,000 — qualifies for a partial contribution Utah Retirement Systems (URS) over $208,000 cannot contribute administers a Roth IRA and a Rollover/Transfers You may roll over or transfer money into a Roth IRA from: You may roll over or transfer » 401(k) » Traditional IRA » Roth IRA » 457(b) » 403(b) money into a Traditional » 401(a) » 403(b) Contents Traditional IRA. Individual retirement accounts » Roth 401(k) » 401(a) » Qualified Pension (only IRA from the following: » 457(b) » Pension (only a lump- » Roth 403(b) » 401(k) a lump-sum distribution) sum distribution) (IRAs) combined with other retirement plans See page 6 for details. IRAs At-a-Glance......... 1 (e.g., 401(k), 457(b), pension, Social Security, Convert IRA You may convert all or part of your Traditional IRA to your Roth IRA. You may convert all or part of a Traditional IRA to a Roth IRA. Roth IRA ................... 2 Amounts converted from a Traditional IRA to a Roth IRA are Amounts converted from a Traditional IRA to a Roth IRA are etc.), provide additional options to save for subject to income taxes, but are not subject to the 10% early subject to income taxes, but are not subject to the 10% early Traditional IRA........... 3 withdrawal penalty tax. See Page 7 for more details. withdrawal penalty tax. See Page 7 for more details. retirement and may assist you in your tax and Roth and Key Tax Advantage Federal tax-free growth (earnings may also be free of state income taxes). Tax-deferred growth. Traditional IRA estate planning. Contribution Limits . 5 Tax-Deductible Contributions to a Roth IRA are not deductible from your income The deductibility of contributions is subject to modified adjusted gross A Roth IRA allows nondeductible (after-tax) Contributions for tax filing purposes. income (MAGI) limits and participation in an employer-sponsored retirement plan. (See page 3 for MAGI limits.) Transfers and Rollovers............. 6 contributions. This gives you the advantage of Withdrawal Eligibility A withdrawal may be made at any time. A withdrawal may be made at any time. Conversions .............. 7 tax-free withdrawals when certain conditions Tax Treatment Contributions can be withdrawn, at any time, without taxes or penalties. All earnings and deductible contributions may be subject to income of Withdrawals Earnings can be withdrawn without taxes or penalties if you are over age taxes when withdrawn. Investing Your Funds... 8 are met. 59½ and you have had a Roth IRA for at least five years. Other Things A Traditional IRA may allow you to deduct 10% Early Withdrawal If you are under age 59½ you may avoid the penalty tax if your withdrawal is for one of the following reasons: to Consider ..............10 Penalty Tax » Payments up to the amount of your deductible medical expenses (without regard to whether you itemize deductions for the taxable year). all or part of your contributions for income » The distributions aren’t more than the cost of your medical insurance due to a certain period of unemployment. URS Savings Plans » You are totally and permanently disabled. » You are the beneficiary of a deceased IRA owner. Comparison Chart......11 tax purposes, while deferring any taxes on » You are receiving distributions in the form of an annuity. » The distributions aren’t more than your qualified higher education expenses. » You use the distributions to buy, build, or rebuild a first home. » The distribution is due to an IRS levy of the qualified plan. Glossary of investment earnings until you start making Investment and » The distribution is a qualified reservist distribution. Financial Terms .........12 withdrawals. Required Withdrawals There are no required (or minimum) distributions while you are living. Required minimum distributions must begin after you reach age 72. 08/18/21 1 URS Roth & Traditional IRAs URS Roth & Traditional IRAs Things to Know Roth IRA » Penalties Traditional IRA As with a Traditional IRA, you may be subject to a penalty tax if you withdraw Benefits of a your earnings before you Benefits of a Roth IRA reach age 59½ or if you Traditional IRA Tax-Free Withdrawals contribute more than either 100% of your earned income Tax Deferral of Investment Earnings A Roth IRA, unlike a Traditional or the allowable maximum Investment earnings compound tax IRA, allows you to withdraw your for a year. deferred. This allows your IRA to grow faster earnings tax free if your account than if it were subject to annual taxation. has been established for at least » Tax Deductibility five years and you are at least 59½ of Contributions More Flexibility Contributions to a Roth years old or the withdrawal is for with Tax Withholding IRA do not qualify for a tax If you withdraw money from certain a first home purchase (subject to deduction, regardless of employer-sponsored savings plan (e.g., a $10,000 lifetime limit). Because your adjusted gross income. your contributions are from after- 401(k), 403(b), 457(b)), IRS rules may require tax (nondeductible) money, you can » Income Restrictions 20% of the amount you withdraw be Income Limits for Single income tax filers with withdraw your contributions at any withheld for federal income taxes. When Traditional IRA Deductibility modified adjusted gross time without taxes or penalties (with you withdraw money from an IRA, you income (MAGI) of $140,000 MAGI of Single Filer the possible exception of amounts can elect to have no taxes withheld.* or greater are not eligible Fully Deductible Partially Deductible converted or rolled over — see IRS to contribute. The maximum *IRS rules require 10% of your Traditional IRA withdrawal Year Up To Up To Publication 590-B for details about contribution limit is gradually amount be withheld unless you choose otherwise. Roth IRA withdrawal if UNDER age 59½ 2021 $66,000 $76,000 Roth IRA ordering rules). reduced if your MAGI is Tax-Deductible Contributions In addition, earnings and Account Established Account Established over $125,000 and less Your contributions are generally tax contributions can pass on to your for More than 5 Years for Less than 5 Years than $140,000. deductible if you are an active participant heirs income tax free. Married/filing jointly, Your All withdrawals are All withdrawals are in an employer-sponsored plan (e.g., 401(k), Contributions tax and penalty free. tax and penalty free. taxpayers with a MAGI Conversion from a Traditional greater than $208,000 are not 457(b), pension plan) and your MAGI is IRA or Employer-Sponsored Plan Your Ordinary income tax Ordinary income tax eligible to make a Roth IRA below a certain threshold. (See the table to One of the great tax planning tools available Investment applies unless a applies to any earnings. contribution. The maximum the right.) For information on calculating Earnings withdrawal is taken In addition, the 10% allowable contribution limit your Traditional IRA deductibility, see IRS is a conversion from a Traditional IRA or employer- for death, disability, penalty tax applies unless is gradually reduced if your sponsored plan to a Roth IRA. This allows you or for first-time home it is for an exception.* Publication 590-A or consult a tax advisor. MAGI is between $198,000 to pay income taxes on a Traditional IRA or pre- purchase. In addition, Broad Eligibility to Contribute tax employer-sponsored plan now and convert the 10% penalty tax and $208,000. If your MAGI is within If you are ineligible to make tax- the money into your Roth IRA. (See Page 7 for applies unless it is for an exception.* the Roth IRA contribution deductible contributions, you can still make more details.) phase-out limits (single filers nondeductible contributions if you have No Required Minimum Distributions Roth IRA withdrawal if OVER age 59½ — $125,000 to $140,000; earned income. During Your Lifetime married/joint filers — Account Established Account Established $198,000 to $208,000), Transfers and Rollovers The Roth IRA can be a worthwhile estate for More than 5 Years for Less than 5 Years review the Reduced Roth IRA When you directly roll over or transfer planning tool, because you are not required to Your All withdrawals are tax All withdrawals are tax Contribution Worksheet in money into a Traditional IRA, the amount MAGI of Joint Filer take distributions during your lifetime and it can Contributions and penalty free.
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