You may want to consider one of the following for the accumulation of your retirement assets and the transfer of your retirement assets to your family.
In a Traditional IRA, you make contributions with money you may be able to deduct on your tax return and any earnings potentially grow tax- deferred until you withdraw them in retirement1.
Tax benefits: Tax-deferred growth, tax-deductible contributions
Eligibility (age): Less than 701⁄2
Eligibility (income): Must have employment compensation
IRA maximum contribution: $5,500 annually ($6,500 if 50 or older)
Withdrawals: Minimum required distributions starting at age 701⁄2
Savings Investment Match Plans for Employees (SIMPLE–IRAs) make it easier for self- employed individuals and small businesses with 100 employees or fewer to offer a tax- advantaged retirement plan, funded by employer contributions and elective employee salary deferrals.
Tax benefits: Employer contributions are deductible as a business expense; tax-deferred growth, pre-tax contributions for participants.
Eligibility: Employer has 100 or fewer employees who earned at least $5000 in the preceding year. Cannot maintain any other employer-sponsored retirement plan.
Participant has earned at least $5,000 from the employer in any two preceding years and is expected to earn $5,000 in the current year 2.
Contribution limits: Plan Sponsor: Mandatory 3% matching contribution or a 2% non elective contribution
Participant: Up to 100% of compensation up to $12,500
($15,500 if age 50 or older) annually.
Establishment deadline: For current tax year – set up and notify employees by October 1st.
Administrative responsibilities: No plan tax filings with IRS. Certain annual employee notifications.
Withdrawals: Minimum required distributions starting at age 701⁄2. 10% early withdrawal penalty (25% for first two years of plan participation) if under age 591⁄2, subject to certain exceptions.
Inherited IRAs are specifically designed for IRA beneficiaries. They offer an opportunity to continue tax-deferred growth of IRA or workplace saving plan assets (e.g. 401(k)).
All inherited IRAs are subject to annual IRS minimum required distributions rules, but these are generally based on the inheritor’s own life expectancy. This enables continued investment in an Inherited IRA without the impact of immediate taxes, so that you can potentially maximize these inherited assets
Take note of important dates.
To preserve all options, inheritors must make certain decisions within nine months of the date of death of the original account owner.
If you’re sharing inherited IRA assets with other beneficiaries, you should set up your own Inherited IRA for your portion of the Inherited IRA assets by December 31 of the year following the IRA owner’s date of death.
Let Mid America Wealth Management help
Recognizing that inheriting assets can be stressful and that there are generally mixed emotions that come with it. Depending on your relationship to the original owner of the assets, there are different options available to you. Please call to set a time for a Personal Consultation.
|TRADITIONAL IRA||ROTH IRA|
|Tax advantage||Tax-deferred earnings.||Tax-free earnings.|
|Eligibility*||You must have earned income equal to or greater than your contribution. No maximum income limit.You must be under age 701⁄2.||You must have earned income equal to or greater than your contribution.Your Modified Adjusted Gross Income must fall within the limits prescribed by the IRS.|
|Maximum contribution allowed by law||$5,500 for tax years 2014 and 2015 ($6,500 if you’re age 50 or older).||$5,500 for tax years 2014 and 2015 ($6,500 if you’re age 50 or older).The maximum Roth contribution depends on your income.|
|Tax deductibility||If you’re not covered by an employer- sponsored retirement plan, contributions are fully deductible regardless of income.If you’re covered by an employer- sponsored retirement plan, your deductible amount depends on your income.||Contributions are nondeductible.|
|Taxes on withdrawals||Ordinary income tax on earnings and deductible contributions.No federal tax on nondeductible contributions.State tax may apply.||Distributions from contributions are tax-free. Distributions from earnings are federally tax-free if you’ve had your Roth IRA for at least five years and you’re over age 591⁄2, or you’re under age 591⁄2, you’ve had your Roth IRA for at least five years, and the distribution is due to your death or disability or for a first-time home purchase ($10,000 lifetime maximum). State tax may apply.|
|Penalty for early withdrawal†||10% federal penalty tax on withdrawals before age 591⁄2 unless an exception applies.||Distributions from contributions are penalty-free. 10% federal penalty tax on withdrawals of earnings before age 591⁄2 unless an exception applies.|
|Required minimum distributions||After age 701⁄2.||None.|
|Contribution deadline||Generally, April 15 of the following year for any given tax year.||Generally, April 15 of the following year for any given tax year.|