There are several types of IRAs including the traditional IRA (the deductible IRA and deductible spousal IRA), the nondeductible IRA, and the Roth IRA. An IRA can be set up with an insurance company, bank, or investment company.
All earnings on traditional IRAs are tax-deferred, meaning taxes on earnings are not paid until you withdraw your money. You must begin making withdrawals from your IRA by age 70 ½.
Taxpayers who exceed the income limits for the deductible IRA (and the Roth IRA, discussed next) can contribute up to $6,000 in 2019 (or $7,000 if age 50 or older) to a nondeductible IRA (up from $5,500 and $6,500 in 2018). While contributions cannot be deducted from income for tax purposes, earnings are not taxed until they are withdrawn.
Roth IRAs allow people within certain income levels to make non-deductible contributions. Your earnings will not be taxed at the time you withdraw your funds if they are held for at least five years and you are age 59 ½ or older when the money is withdrawn. (Unlike traditional IRAs, distributions do not have to begin at age 70 ½.)
The limit for a Roth IRA, if you are single or head of household, is rising from $5,500 $6,000 in 2019 ($7,000 if over age 50, up from $6,500 in 2018) if your income does not exceed $122,000 (up from $120,000 in 2018). A partial contribution is available for incomes up to $137,000 (up from $135,000). If you are married with a combined income up to $193,000 (up from $189,000 in 2018), you are eligible to contribute to a Roth IRA. Married couples may make a partial contribution with a combined income up to $203,000. (up from $199,000 in 2018). Note: your contributions to a traditional IRA will reduce the amount that you may contribute to a Roth IRA.
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