Traditional Individual Retirement Accounts (IRA), which were created in 1974, are owned by roughly 36.1 million U.S. households. And Roth IRAs, created as part of the Taxpayer Relief Act in 1997, are owned by nearly 24.9 million households.1
Both are IRAs. And yet, each is quite different.
Up to certain limits, traditional IRAs allow individuals to make tax-deductible contributions into their account(s). Distributions from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 72, you must begin taking required minimum distributions.2,3
For individuals covered by a retirement plan at work, the deduction for a traditional IRA in 2021 is phased out for incomes between $105,000 and $125,000 for married couples filing jointly, and between $66,000 and $76,000 for single filers.4
Also, within certain limits, individuals can make contributions to a Roth IRA with after-tax dollars. To qualify for a tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½.5
Like a traditional IRA, contributions to a Roth IRA are limited based on income. For 2021, contributions to a Roth IRA are phased out between $198,000 and $208,000 for married couples filing jointly and between $125,000 and $140,000 for single filers.6
In addition to contribution and distribution rules, there are limits on how much can be contributed each year to either IRA. In fact, these limits apply to any combination of IRAs; that is, workers cannot put more than $6,000 per year into their Roth and traditional IRAs combined. So, if a worker contributed $3,500 in a given year into a traditional IRA, contributions to a Roth IRA would be limited to $2,500 in that same year.7
Individuals who reach age 50 or older by the end of the tax year can qualify for “catch-up” contributions. The combined limit for these is $7,000.8
Both traditional and Roth IRAs can play a part in your retirement plans. And once you’ve figured out which will work better for you, only one task remains: open an account.9
Features of Traditional and Roth IRAs
* Up to certain limits
** Distributions from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty; however, during the year 2020, the CARES Act allows eligible participants to take an early distribution of up to $100,000 without paying the 10% penalty. Generally, once you reach age 72, you must begin taking required minimum distributions.
*** To qualify, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½.
If you have any additional questions about either IRA option, please reach out us. Let’s make sure you are taking full advantage of your retirement savings options. Remember that you have until April 18th this year to fund an IRA or Roth IRA if you qualify.
Have a fantastic weekend!
Golf Tip of the Week
Better Chips Through Quiet Hands
Occasionally, newer and seasoned golfers alike get nervous over the ball when faced with a tough lie, forced carry or tight pin. But if your knees are knocking over every short shot, this tip is for you and better chips are on the way.
Next time you miss a green, let the thumb and index finger of your trail hand go along for the ride.
We’ve all heard “quiet hands” when it comes to chipping. What that really means is the muscles in your arms should be more active than the muscles in your hands. The easiest way to feel this separation is to take the thumb and index finger of your trail hand off the club when practicing chips. Using the muscles in those fingers are great for writing or throwing but are very often the culprits to miserable chip shots. By removing these fingers from the grip you’ll take the flip move out of your swing, create a wider – more forgiving – impact area, and get up and down more often.
Tip adapted from golftipsmag.comi
Recipe of the Week
Flavorful Lemon Chicken
6 servings
Ingredients
- 1 teaspoon dried oregano
- 1/2 teaspoon seasoned salt
- 1/4 teaspoon pepper
- 6 boneless skinless chicken breast halves (6 ounces each)
- 2 teaspoons chicken bouillon granules
- 1/4 cup boiling water
- 3 tablespoons lemon juice
- 1-1/2 teaspoons minced garlic
- 1-1/2 cups sour cream
- 2 teaspoons minced fresh parsley
- Hot cooked brown rice, optional
Instructions
- Combine the oregano, seasoned salt and pepper; rub over chicken. Place in a 3-qt. slow cooker.
- In a small bowl, dissolve bouillon in boiling water. Stir in lemon juice and garlic. Pour over chicken. Cover and cook on low until chicken is tender, 4-5 hours.
- Remove chicken and keep warm. Stir in sour cream and parsley; cover and cook until heated through, about 15 minutes. Serve chicken with sauce and, if desired, rice.
Recipe adapted from tasteofhome.comii
Health Tip of the Week
The Biggest Breakfast Mistake You Can Make
For years, we’ve been told that breakfast is the most important meal of the day. But it can’t give you the energy and brainpower you need if you’re making these common mistakes.
- Skipping it
- Not eating enough
- Wolfing it down
- Skimping on protein
- Canceling carbs
- Passing up healthy fats
- Excluding eggs
- Super-sizing your cereal
- Compromising your coffee
- Drinking the wrong juice
- Waving off water
- Settling for so-so smoothie
- Buying the wrong breakfast bars
- Getting sabotaged by sugary yogurt
Tip adapted from webmed.comiii
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Sources:
1. Investment Company Institute, May 2020
2. IRS.gov, March 12, 2021. Under the SECURE Act, in most circumstances, once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA). You may continue to contribute to a Traditional IRA past age 70½ under the SECURE Act as long as you meet the earned-income requirement.
3. Up to certain limits, traditional IRAs allow individuals to make tax-deductible contributions into their account(s). Distributions from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 72, you must begin taking required minimum distributions.
4. IRS.gov, November 4, 2020
5. Investopedia.com, 2021
6. IRS.gov, November 4, 2020
7. IRS.gov, March 12, 2021
8. IRS.gov, March 12, 20219. The Tax Cuts and Jobs Act of 2017 eliminated the ability to “undo” a Roth conversion.
Disclosure:
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with Ballentine Capital Advisors. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.
Ballentine Capital Advisors is a registered investment adviser. The advisory services of Ballentine Capital Advisors are not made available in any jurisdiction in which Ballentine Capital Advisors is not registered or is otherwise exempt from registration.
Please review Ballentine Capital Advisors Disclosure Brochure for a complete explanation of fees. Investing involves risks. Investments are not guaranteed and may lose value.
This material is prepared by Ballentine Capital Advisors for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation or any particular security, strategy, or investment product.
No representation is being made that any account will or is likely to achieve future profits or losses similar to those shown. You should not assume that investment decisions we make in the future will be profitable or equal the investment performance of the past. Past performance does not indicate future results.
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[i] https://www.golftipsmag.com/instruction/short-game/better-chips-through-quiet-hands/
ii https://www.tasteofhome.com/recipes/flavorful-lemon-chicken/
iii https://www.webmd.com/diet/ss/slideshow-breakfast-mistakes
