IRAs and Roth IRAs

An Individual Retirement Account (IRA) is a personal savings plan that allows clients to set aside funds for their retirement. Contributions are tax deductible. Investments made within traditional IRAs grow tax-deferred (meaning you pay income taxes on the contributions and ALL the investment growth when removing the money).

A Roth IRA is similar to an IRA except you fund it without taking a deduction. However, the money in a Roth IRA is still allowed to grow tax-free and be removed tax-free in retirement.

Not everyone can contribute to an IRA.

For Single-Filers Covered by a Company Retirement Plan—the phase-out is now $64,000 to $74,000 of AGI (Adjusted Gross Income).

For Married-Filers Covered by a Company Retirement Plan—the phase-out is $103,000 to $123,000 of AGI. For a married filer who isn’t covered by a company retirement plan, but whose spouse is covered, the phase-out is $193,000 to $203,000 of AGI.

IRAs are somewhat limiting in the deductions you can take ($7,000 in 2024 if you qualify) and not all businesses have 401(k) Plans (which employees can deduct up to $23,000 in 2024 (or $28,000 if over age 50)).

If you are a business owner, you have more options because you are in control of your business’s qualified retirement plan.

Business owners can tax defer a significant amount of money away in a 401(k)/Profit Sharing Plan (PSP) combo ($69,000 in 2024 into the PSP + $23,000 into a 401(k)). They can tax defer even more (additional) money away in a Defined Benefit (DB) Plan ($75,000, $100,000, even up to $200,000 or more depending on age and income).

Not everyone can contribute to a Roth IRA.

For Single & Head of Household—the phase-out is $122,000 to $137,000.

For Married Joint-Filers—the phase out is $193,000 to $203,000.

If you have questions about whether an IRA or Roth IRA is a good planning tool for you or if you have questions about the phase out rules, please contact our office and we’d be happy to help.