IRAs are one tool in the retirement planning toolbox

06 14 IRS Tax Tips English Headline Image

【《We Chinese in America》Media Editor Tang Zhao, July19, 2022】As an ongoing effort to enhance our valuable service to We Chinese in America website readers, We Chinese in America website posts English and Chinese versions of “IRS News Release” ， “IRS Fact Sheets”， and “tax tips” directly received from IRS Media Relations Office in Washington, D.C.. We are pleased to take on this important role partnering with IRS to better inform the public.

IRAs are one tool in the retirement planning toolbox
IRS Tax Tip 2022-107

There are many ways people plan for retirement. Individual Retirement Arrangements, or IRAs, are a common one. IRAs provide tax incentives for people to make investments that can provide financial security when they retire. These accounts can be with a bank or other financial institution, a life insurance company, mutual fund, or stockbroker.

Here are some things to know about a traditional IRA.

A traditional IRA is a tax-advantaged personal savings plan where contributions may be tax deductible.

· Generally, the money in a traditional IRA isn’t taxed until it’s withdrawn.
· There are annual limits to contributionsdepending on the person’s age and the type of IRA.
· When planning when to withdraw money from an IRA, taxpayers should know that:
- o They may face a 10% penalty and a tax bill if they withdraw money before age 59½, unless they qualify for an exception.
- o Usually, they must start taking withdrawalsfrom their IRA when they reach age 72. For tax years 2019 and earlier, that age was 70½.
- o Special distribution rules apply for IRA beneficiaries.

Roth IRAs are like traditional IRAs, but there are some important differences.

A Roth IRA is another tax-advantaged personal savings plan with many of the same rules as a traditional IRA but there are exceptions:

· A taxpayer can’t deduct contributions to a Roth IRA.
· Qualified distributionsare tax-free.
· Roth IRAs don’t require withdrawals until after the death of the owner.

Here are a few other types of IRAs:

· Savings Incentive Match Plan for Employees. A SIMPLE IRA allows employees and employers to contribute to traditional IRAs set up for employees. It is suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.
· Simplified Employee Pension. A SEP IRA is set up by an employer. The employer makes contributions directly to an IRA set up for each employee.
· Rollover IRA. This is when the IRA owner receives a payment from their retirement plan and deposits it into a different IRAwithin 60 days.

More information:

(Source: IRS Tax Tips)

Internal Resource Service

Media Relation Office

Washington, D. C

Media Contact: 202 317 4000

Public Contact: 800 829 1040

www.IRS.GOV/NewsRoom

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