{"id":30,"date":"2020-01-23T17:27:48","date_gmt":"2020-01-23T17:27:48","guid":{"rendered":"https:\/\/elevatedwallet.com\/?p=30"},"modified":"2020-01-29T21:36:13","modified_gmt":"2020-01-29T21:36:13","slug":"what-is-an-ira","status":"publish","type":"post","link":"https:\/\/elevatedwallet.com\/?p=30","title":{"rendered":"WHAT IS AN IRA?"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">Answer: Individual Retirement Account<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">There are 7 types of IRAs:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">Traditional IRA<\/span><\/li><li><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">Roth IRA<\/span><\/li><li><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">SEP IRA<\/span><\/li><li><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">Non Deductible IRA<\/span><\/li><li><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">Spousal IRA<\/span><\/li><li><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">Simple IRA<\/span><\/li><li><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">Self-Directed IRA<\/span><\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">This article will focus on the 2 most popular IRAs: TRADITIONAL &amp; ROTH and will help explain why they are essential tools for retirement planning.  <\/span><\/p>\n\n\n\n<p class=\"has-background has-text-align-center has-gray-background-color wp-block-paragraph\"><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\"><strong><span style=\"color:#eee\" class=\"tadv-color\">WHAT IS THE DIFFERENCE BETWEEN A TRADITIONAL IRA &amp; A ROTH IRA?<\/span><\/strong><\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">Answer: The difference is essentially when you receive a tax break (and contribution rules)<\/span><\/p>\n\n\n\n<p class=\"has-text-align-center wp-block-paragraph\"><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">TRADITIONAL IRA (NOW) | ROTH IRA (LATER)<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\"><strong>TRADITIONAL IRA<\/strong><\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">PROS:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\"><strong>Pre-Tax Contributions<\/strong>. Any contributions you make to a Traditional IRA lowers your current year&#8217;s taxable income.<\/span><\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">If you are on the cusp between tax brackets and the $6,000 (the max contribution limit for 2020 for those under 50) can lower your tax tier than this could potentially save you quite a bit on your income tax.<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\"><strong>No Cap Income Restrictions<\/strong>. Regardless of how high your income, you can contribute to a Traditional IRA.<\/span><\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">CONS:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\"><strong>Withdrawals Are Taxed <\/strong>|&nbsp;This is a pretty significant con since your income at retirement should be greater than your current income (assuming you&#8217;ve been saving for decades to retirement and the market hasn&#8217;t collapsed).<\/span><\/li><li><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\"><strong>Mandatory Withdrawals (RMD)<\/strong>|&nbsp;As soon as you reach 70 <sup>1<\/sup>\/<sub>2<\/sub>, you can no longer contribute to a Traditional IRA and must make minimum withdrawals annually.<\/span><\/li><li><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\"><strong>Early Withdrawal Penalties <\/strong>| If you are younger than 59 <sup>1<\/sup>\/<sub>2<\/sub> and withdraw from your Traditional IRA, there will be a 10% penalty.  Additionally you will have to pay income tax on the total of the withdrawn amount.<\/span><\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\"><em>*There are instances where this penalty is waived.  Example: buying your 1st home<\/em><\/span><\/p>\n\n\n\n<p><span class=\"tadv-color\" style=\"color: #767676; font-family: calibri-light; font-size: 20px;\">ROTH IRA<\/span><\/p>\n\n\n\n<p><span style=\"font-family: calibri-light; font-size: 20px; color: #808080;\">PROS:<\/span><\/p>\n<ul>\n<li><span style=\"font-family: calibri-light; font-size: 20px; color: #808080;\"><strong>Tax-Free Withdrawals<\/strong> | After you turn 59 <sup data-rich-text-format-boundary=\"true\">1<\/sup>\/<sub>2<\/sub>, you may start to withdraw money from your Roth IRA tax-free!<\/span><\/li>\n<\/ul>\n<p><span style=\"font-family: calibri-light; font-size: 20px;\"><span style=\"color: #808080;\">After decades of investing in a Roth IRA, investments are compounded exponentially. This exponential growth may potentially result in a vast annual income. <\/span><\/span><\/p>\n<p><span style=\"font-family: calibri-light; font-size: 20px;\"><span style=\"color: #808080;\">Here is a hypothetical example to help clarify the significance of the Tax-Free Withdrawal benefit:<\/span><\/span><\/p>\n<p><span style=\"font-family: calibri-light; font-size: 20px;\"><span style=\"color: #808080;\">Person A (Single) makes an \u201cearned income\u201d of $100,000 annually. &nbsp;This puts Person A in the 24% tax rate tier for this year (2020). &nbsp;$24,000 of their earned income will be paid to the IRS. &nbsp;Person A&#8217;s earned income actual take-home amounts to $76,000. &nbsp;<\/span><\/span><\/p>\n<p><span style=\"font-family: calibri-light; font-size: 20px;\"><span style=\"color: #808080;\">On the other hand:<\/span><\/span><\/p>\n<p><span style=\"color: #808080; font-family: calibri-light; font-size: 20px;\">Person B (over age 59 <sup data-rich-text-format-boundary=\"true\">1<\/sup>\/<sub>2<\/sub><\/span><span style=\"color: #808080; font-family: calibri-light;\"><span style=\"font-size: 20px;\">) makes an annual withdrawal of $100,000 from their Roth IRA. &nbsp;Since the Roth IRA has a Tax-Free Withdrawal perk, Person B will not have to pay taxes on the $100,000 they have withdrawn. &nbsp;That&#8217;s an annual savings of $24,000!<\/span><\/span><\/p>\n<p><em><span style=\"font-family: calibri-light; font-size: 20px; color: #808080;\">*The IRS classifies \u201cearned income\u201d separately from passive income. (Example: rental income is not classified as \u201cearned income\u201d)<\/span><\/em><\/p>\n<p><span style=\"font-family: calibri-light; font-size: 20px; color: #808080;\">CONS:<\/span><\/p>\n<ul>\n<li><span style=\"font-family: calibri-light; font-size: 20px; color: #808080;\"><strong>Income Cap Limits<\/strong> | If your earned income is over that year&#8217;s set threshold, you cannot contribute to a Roth IRA. &nbsp;<\/span><\/li>\n<\/ul>\n<p><span style=\"font-size: 20px; font-family: calibri-light; color: #808080;\">*<em>There is a back-door solution. Hypothetically, if one\u2019s income is exceeds the cap, one may technically contribute to a Traditional IRA that year and then transfer those monies into a Roth IRA.<\/em><\/span><\/p>\n\n\n\n<p style=\"color:#ffffff\" class=\"has-text-color has-background has-text-align-center has-gray-background-color wp-block-paragraph\"><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\"><strong><span style=\"color:#eee\" class=\"tadv-color\">WHAT TYPE OF IRA SHOULD YOU INVEST IN? <\/span><\/strong><\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">Answer: It depends<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">If you have more than 30 years until retirement &#8211; <strong>Roth IRA<\/strong><\/span><\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">This assumes your income rate will be greater at retirement than currently is<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">If your income at retirement will be less than your current income &#8211; <strong>Traditional IRA<\/strong><\/span><\/li><li><span style=\"font-family: calibri-light; font-size: 20px; color: #827d7d;\">If your taxable income can be lessened enough to change your tax bracket to a significantly lower tax rate &#8211; <strong>Traditional IRA<\/strong><\/span><\/li><\/ul>\n\n\n\n<figure class=\"wp-block-image size-large\"><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" width=\"635\" height=\"331\" src=\"https:\/\/i0.wp.com\/elevatedwallet.com\/wp-content\/uploads\/2020\/01\/image-2.png?resize=635%2C331&#038;ssl=1\" alt=\"\" class=\"wp-image-77\" srcset=\"https:\/\/i0.wp.com\/elevatedwallet.com\/wp-content\/uploads\/2020\/01\/image-2.png?w=635&amp;ssl=1 635w, https:\/\/i0.wp.com\/elevatedwallet.com\/wp-content\/uploads\/2020\/01\/image-2.png?resize=300%2C156&amp;ssl=1 300w\" sizes=\"auto, (max-width: 635px) 100vw, 635px\" \/><\/figure>\n\n\n\n<p><span style=\"font-family: calibri-light; color: #808080; font-size: 20px;\">I strongly encourage you to begin investing in an IRA today. \u00a0Each day you hold off on doing so is another day that money sitting stagnately in the bank could be compounding and making you more tax-free money! \u00a0The opportunity cost of not investing in an IRA is too great.\u00a0<\/span><\/p>\n<p><span style=\"font-family: calibri-light; color: #808080; font-size: 20px;\">*If you already have a 401K (I hope it&#8217;s a Roth 401k if you still have 30+ years until retirement) you may still reap the benefits of investing in an IRA. \u00a0Maxing out both your 401k and IRA each year will expedite your retirement savings exponentially!<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Answer: Individual Retirement Account There are 7 types of IRAs: Traditional IRA Roth IRA SEP IRA Non Deductible IRA Spousal IRA Simple IRA Self-Directed IRA This article will focus on the 2 most popular IRAs: TRADITIONAL &amp; ROTH and will help explain why they are essential tools for retirement planning&#8230;.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[2],"tags":[9,10,8],"class_list":["post-30","post","type-post","status-publish","format-standard","hentry","category-retirement","tag-investing","tag-ira","tag-retirement","post-archive"],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/elevatedwallet.com\/index.php?rest_route=\/wp\/v2\/posts\/30","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/elevatedwallet.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/elevatedwallet.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/elevatedwallet.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/elevatedwallet.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=30"}],"version-history":[{"count":5,"href":"https:\/\/elevatedwallet.com\/index.php?rest_route=\/wp\/v2\/posts\/30\/revisions"}],"predecessor-version":[{"id":168,"href":"https:\/\/elevatedwallet.com\/index.php?rest_route=\/wp\/v2\/posts\/30\/revisions\/168"}],"wp:attachment":[{"href":"https:\/\/elevatedwallet.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=30"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/elevatedwallet.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=30"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/elevatedwallet.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=30"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}