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How to reduce taxable income AGI by contributing to an IRA retirement account #taxes #retirement - YouTube
Channel: Let's Talk Money Channel
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Hi everyone welcome to my channel let's talk money my name is Diana, and my goal today is to help you understand
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What is an IRA and how can it help you save money for retirement?
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Today I will be discussing what an IRA is who can contribute to a traditional IRA?
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How much can you invest each year are the contributions tax-deductible?
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When can you take money out? What are the benefits?
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Advantages and disadvantages of IRA accounts and so much more just a quick reminder for those that haven't subscribed to my channel
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Yet, please
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support my channel by subscribing
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liking
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commenting under the videos
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I do not get paid and I will not endorse any companies in this video so the information presented is
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Absolutely educational again, please consider supporting my channel by subscribing
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Ok so let's get started
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What is IRA an IRA stands for individual retirement?
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Account if you work you probably have a 401k plan at work if you don't have a retirement plan at work
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Then you can set up an IRA account
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For yourself with an IRA you can pay less tax on either the contributions or your earnings without
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Traditional IRA your investments can get taxed on both you probably also came across a Ruth
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IRA what is it I'll explain so both traditional and Ruth Airways
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Provide generous tax breaks, but it's a matter of timing when you get to claim them
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so
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traditional IRA contributions are tax deductible on both state and federal tax returns
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For the year you make the contribution withdrawals in retirement and taxed at ordinary income tax rates
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Roth IRAs provide no tax breaks for contributions, but earnings and withdrawal
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I generally tax-free so with traditional IRAs you avoid taxes when you put the money in
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Where the rules IRAs you avoid taxes when you take out the money in retirement, then this is up
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It depends on a case by case
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So in this video we will mainly talk about
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Traditional IRA accounts and now let's see who can contribute to a traditional IRA account
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The first rule if you are younger than seven years and a half then you can contribute to an IRA account
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If you have taxable compensation during the year such as salaries wages tips
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Bonuses commissions and self-employment income you are eligible to contribute to an IRA account
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You can contribute an amount equal to your taxable compensation up to five thousand five hundred
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Or if you are older than fifty years, you can also have a catch-up
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Contribution in hand contribute six thousand five hundred and that's for year
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2018 now
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Comes the most awaited question how much of your IRA?
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Contribution is tax-deductible and the answer is it depends
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Your deduction may be limited if you or your spouse if you're married are
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Covered by a retirement point at work in your income exceeds certain levels
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Your deduction is allowed in full if you and your spouse if you're married aren't
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Covered by a retirement plan at work
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So if you do have a work-related retirement account you can still deduct your contribution as long as your adjustable
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adjusted gross income is below a certain amount so for example for year 2018 if your
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Adjusted gross income is below
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63,000 for an individual and below one hundred and one
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thousand for a married couple filing jointly you can deduct your
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Contributions on your taxes this amounts a subject to change and again
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This is for 2018 make sure you always check the limits and regulations to make sure you have the most updated information
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I have a link to my blog under the video with more details feel free to check it out
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If you do have a work-related retirement account
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There is a phase-out limits for making deductible contributions to an IRA
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If you're married and are filing jointly and having
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adjusted gross income about
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189,000 or more than the deduction of your contribution is completely phased out
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Now let's talk about the timing when you can take money out of IRA account you can
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withdraw or take distribution from your traditional IRA at any time however
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It's very very very important that you know the rules regarding distributions from a traditional
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I are in order to avoid penalties for early distributions
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So if you are over the age of 59 and a half your full distribution will be taxed as ordinary
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Income for the year in which you take the distribution which is typical if you are under age of 59 and a half your full
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distribution will still be taxed as ordinary income for the year you take the distribution, but you will also be taxed a
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10% penalty
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This is one of the most important things
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I want you to remember with the traditional, ayah, if you decide to take a distribution before you are
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59 and a half not only will you be paying regular income taxes on the full distribution amount?
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But you will also pay a 10% penalty for taking an early distribution
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I would never recommend you take this risk the distribution from your traditional IRA
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Before you reach age 59 and a half obviously the right exceptions to this rule and I will address it in a separate video
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So really what are the benefits of IRA?
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well one of the obvious reasons of
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Investing money in their IRA account is that you create a pension fund for your retirement the money grows tax-free
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And now the advantage is that the amount you invest each year can be a tax deduction as I mentioned earlier
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Let's also look at some
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disadvantages of IRA and since that IRA is a retirement investment there are certain rules so for
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What you can take out any money until you are aged 59 and a half
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But if you take distributions before this age you will pay a penalty of 10% plus
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tax on ordinary income also
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once you reach to 8 in the age of 70 and a half you are required to take the
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Distribution where you money or not? I mean obviously
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Distributions are taxed so if you if your tax bracket in retirement will be higher
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Or if the tax law changes unfavorably then your distributions will be taxed at a higher rate
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So to sum it up the advantages are obvious
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The main goal of setting up an individual IRA account is to save money for retirement
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Besides when you deposit money into your IRA
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you reduce your taxable income by the same amount ring your working years if
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You're self-employed you might want to check out our video about
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self-employed IRA or SEP IRA
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Specifically designed for those individuals that are self-employed as always
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Thank you for watching this video and supporting our channel. Let's talk money
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I hope you enjoy the information presented here and consider supporting our channel by subscribing
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