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Saving all the retirement money

There are so many different types of IRAs and it can get confusing really quick, if you’re not aware of what you’re supposed to be doing, for how long, and for how much. A traditional IRA is any IRA that is not a Roth IRA. Any individual can set up a traditional IRA if he or she receives taxable compensation during the year and is not age 70½ by the end of the year. An individual can have a traditional IRA even if covered by an employer-sponsored retirement plan. However, the deductible amount of contributions to a traditional IRA may be phased out.

Contribution limit.

Contributions to IRAs are limited to the lesser of the individual’s compensation (or spouse’s compensation under a spousal IRA), or $6,000 ($7,000 age 50 or older).

Spousal IRA.

If both spouses have compensation, each can set up a separate IRA. Spouses cannot participate in the same IRA. If Married Filing Jointly, and one spouse’s compensation is less than the contribution limit, the lower-income spouse can use the compensation of the other spouse to qualify.


A SEP is a traditional IRA with different per year contribution limits. An employer (or self-employed individual) makes deductible contributions to a traditional IRA on behalf of the employee (or self-employed individual). Distributions are generally subject to the same rules that apply to traditional IRAs.

Penalties apply when IRA funds are used in prohibited transactions. A prohibited transaction is any improper use of traditional IRA funds by the participant, the beneficiary, or a disqualified person. The following are examples of prohibited transactions.

Borrowing money from an IRA.

Selling property to an IRA.

Receiving unreasonable compensation for managing an IRA.

Using an IRA as security for a loan.

Buying property for personal use (present or future) with IRA funds.

A Roth IRA is subject to the same rules as a traditional IRA except for the following.

Contributions are nondeductible. Thus, active participation in an employer plan is irrelevant.

If certain requirements are satisfied, distributions are tax free.

Contributions can be made after the participant reaches age 70½.

The required minimum distribution rules do not apply. Distributions are not required until death of the participant.

Contributions phase out for 2019 when modified adjusted gross income is $193,000 to $203,000 for Married Filing Jointly, $122,000 to $137,000 for Single and Head of Household tax filers, and $0 to $10,000 for Married Filing Separately where both spouses live together.

Neither a SEP IRA nor a SIMPLE IRA can be set up as a Roth IRA.

A defined contribution plan is a qualified plan that provides an individual account for each participant in the plan. Benefits depend upon the amount contributed, income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to a participant’s account. Examples of defined contribution plans include profit-sharing plans, money purchase plans, 401(k) plans, and 403(b) plans.

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